What distinguishes an HRA from an HSA?

• A. HRA contributions are made by employees only
• B. HRA funds can be rolled over indefinitely
• C. HRAs are not required to roll over unused funds after the plan year
• D. HRAs are always owned by the employee

Answer: (C)

The key distinction between a Health Reimbursement Arrangement (HRA) and a Health Savings Account (HSA) lies in the ownership and control of the funds as well as the rules governing fund rollover.

An HRA is primarily employer-funded, and the employer has control over the contributions, which can vary each year. Importantly, HRAs are not required to allow unused funds to roll over after the plan year. This means that if an employee does not use their funds by the end of the plan year, the employer can choose to forfeit those amounts. This differs from HSAs, which are owned by the individual and can roll over indefinitely, allowing employees to accumulate savings over time.

In contrast, while HSAs are employee-owned and contributions can be made by both the employee and the employer, the notion of ownership and the management of funds significantly differentiates HRAs from HSAs. Thus, the statement that HRAs are not required to roll over unused funds accurately highlights the flexibility that employers have regarding unused balances in an HRA, distinguishing it from how HSAs operate.