One of the interesting personal finance corners of information is a Limited Purpose FSA. This is different from a Health Savings Account (HSA). But it is also different from a regular Flexible Spending Account (FSA). It’s sort of a hybrid. Let me explain.
(1) What is a Limited Purpose FSA?
A Limited Purpose FSA (LPFSA) is just like a regular Flexible Spending Account, except that it can only be used for vision and dental purposes. Hence, it has a limited purpose.
The best candidate to use a LPFSA is someone who is enrolled in a high-deductible healthcare plan but wants to have the added tax savings of the FSA.
If you are not enrolled in a high-deductible healthcare plan and have a regular FSA available at your work, you cannot also have a Limited Purpose FSA. No double dipping.
The amount that you can put into a Limited Purpose FSA is the same as a regular FSA ($2,750 per person).
The type of person that would be most likely to use a LPFSA is someone who is:
- Enrolled in a high-deductible healthcare plan
- Don’t use your HSA for medical expenses (you just use your regular checking account)
- Maxes out their HSA each year
- Wants to save money in their HSA for the future
- Still wants to save money on taxes for their vision and dental needs
- Will DEFINITELY use the money in their LPFSA by the end of the year
So if you already have a high-deductible healthcare plan and are using that as a savings account and/or retirement account and are in good health (the only time that you go to the MEDICAL doctor is for your annual checkup or if you had a horrible car accident or something) you should consider this.
So if you don’t go to the regular doctor but you need to have some dental work done, just need routine dental work done, have glasses/contacts, or might need to have glasses/contacts you might want to consider a Limited Purpose FSA.
But REMEMBER, make sure to use your funds that are in the Limited Purpose FSA by the end of the year or you will lose that money! This is the most important thing about an FSA.
Final Thoughts
A LPFSA is a really great tool for those of us who have a high-deductible healthcare plan but are not using it to cover medical expenses but still want to save some taxes on our dental and vision expenses.
I have both glasses and issues with my teeth that I have corrected over the past few years and have used a Limited Purpose FSA. Overall, I have probably spent about $5,000 on dental work and glasses/contacts. If I would have not used a LPFSA, it would have cost me almost $7,000.
A Limited Purpose FSA is a really great tool to be able to take advantage of the benefits of HSAs as well as the benefits of FSAs.
Sometimes (most of the time) the issues of personal finance can be overwhelming and confusing. But I will do my best to help you sort through them to make the best decision for you and your family. 🙂
I am here for you!
Until next time!
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