As part of the employer benefits landscape, many people have heard of the big three in consumer directed healthcare: Flexible Spending Accounts (FSAs), Health Reimbursement Arrangements (HRAs), and Health Savings Accounts (HSAs). But have you heard of Limited Purpose FSAs?
Here’s a list of frequently asked questions (FAQs) and their answers to help you get up to speed on Limited Purpose FSAs:
Q: What is a Limited Purpose FSA (LPFSA)?
Limited Purpose FSAs are a flexible spending account that may be available to people who own an HSA in order to pay for qualified vision and dental expenses for themselves and their dependents. Account holders may contribute pretax income for an LPFSA and save on their taxes; employers may also fund an employee’s LPFSA, but are not required to do so.
Q: How is an LPFSA different than an FSA?
A general purpose FSA allows account holders to pay for a long list of IRS-approved expenses, including prescription medications, copays, most dental treatments, and other medical related needs. If a person has an HSA, they are not eligible to also have a general purpose FSA.
An LPFSA allows account holders to receive reimbursement for eligible dental and vision expenses. A person with a high deductible health plan with an HSA is eligible for an LPFSA.
Q: What are the contribution limits for an LPFSA?
Just like a general purpose FSA, you can contribute up to $2,550 each year. Also, the funds in an LPFSA expire at the end of the plan year, just like an FSA; therefore, it is crucial that account holders make an accurate estimate of their vision and dental expenses, or risk losing the unused funds.
Some employers allow up to $500 of carryover for LPFSAs.
Q: Why are LPFSAs important?
The IRS rules prohibit people from being able to contribute to both an HSA and a general purpose FSA. By limiting the eligible expenses to dental and vision, participants can have an LPFSA and an HSA at the same time, thereby maximizing their savings and tax benefits.
Q: How can I enroll in an LPFSA?
You can enroll or renew your election in an LPFSA during your employer’s open enrollment period. Talk with your Human Resources department to determine when the enrollment period begins.
Q: What types of out-of-pocket expenses are covered by an LPFSA?
Common expenses include*:
|Eye exams||Dental exams/cleanings|
|Vision correction procedures||Braces|
*Contact your LPFSA administrator for a full list of eligible expenses.