HRA vs. HSA Accounts: Compare Differences and Pros and Cons

Is an HRA or an HSA the best choice for you?

By Kailey Hagen – Updated Dec 3, 2024 at 4:50 PM

Key Points

HSAs are owned by the individual, allowing contributions and investment growth; HRAs are employer-owned.
HSA contributions provide tax benefits and remain with you after leaving a job; HRA funds are lost after leaving your employer's health plan.
Both HRA and HSA reduce healthcare costs, but HRAs have more usage restrictions set by employers.

Health reimbursement accounts (HRAs) and health savings accounts (HSAs) can reduce the costs of paying for medical care, but there are important differences between these two savings vehicles.

The main difference between HRAs and HSAs is that you own your HSA, while your employer owns and funds your HRA and can impose more limitations on it. You can also make contributions to an HSA and can invest your HSA money so it grows, but you can't do that with an HRA. Let's look at these differences in more detail.

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An infographic comparing the similarities and differences between HRA and HSA plans. — Image source: The Motley Fool.

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Source: IRS.
Aspect	HRA	HSA

Eligibility rules	Only employers can offer HRAs. Anyone whose employer offers an HRA is eligible for the account.	Employees or individuals can open HSAs. You must have a qualifying HDHP to be eligible to contribute to an HSA.
Contribution rules	Only employers can contribute. Contributions are tax-deductible for employers and tax-free for employees.	Employers and individuals can contribute. Contributions are made with pre-tax dollars.
Annual contribution limits	Varies depending on HRA type. In some cases, there is no limit on the amount employers can contribute.	$4,150 for self-only coverage in 2024 ($4,300 in 2025). $8,300 for family coverage in 2024 ($8,550 in 2025). $1,000 additional catch-up contribution for those older than 55 in 2024 and 2025.
Account ownership	Employers own HRAs. Leaving a job means losing access unless you elect COBRA continuation if eligible.	Employees own HSAs and can take them with them when leaving a job.
Withdrawal rules	Money in an HRA can be used only for qualifying medical expenses.	You can withdraw only money you've contributed. You can withdraw money for any reason but will be subject to a 20% penalty plus income taxes if you're younger than 65 and the funds aren't used for qualifying medical purposes. Withdrawals can be made without penalty for any purpose after age 65 and will be taxed at your ordinary income tax rate.
Investing rules	HRA money cannot be invested.	HSA money can be invested and grow tax-free.
Carryover rules	Varies by plan: Some plans allow money to carry over into the next year. Others are use it or lose it.	Money in an HSA doesn't have to be used in the year contributions are made. It can remain indefinitely in your account and grow tax-free.

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HRA vs. HSA pros and cons

Often, you don't get a choice whether to use an HRA or an HSA. The decision is made for you based on your employer and/or the type of health plan you choose to enroll in. But sometimes you do have the option to decide between the two account types.

If you're considering which account is right for you, you need to understand the pros and cons of an HRA versus an HSA.

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HRA advantages and disadvantages

Here are the biggest advantages of an HRA:

Employers contribute money to an HRA to help you cover health costs. You don't have to make your own contributions, and, in fact, aren't allowed to put your own money into the account.
There's no maximum annual limit on how much employers are allowed to contribute to your HRA.
HRA money can help you pay for qualifying healthcare expenses, thus reducing your out-of-pocket costs.
Money your employer puts into your HSA is not taxable for you.

And here are the biggest disadvantages:

You can't contribute to your own HRA, so you are reliant on your employer to put money in.
Your employer owns the account, and you lose your HRA money if you leave your job unless you elect COBRA coverage.
Money in an HRA cannot be invested and grow year over year.
In many cases, the money in the HRA must be spent the year it is contributed or you lose it. Employers can, but do not have to, allow some funds in your HRA to carry over to the next year.