What is a Limited Purpose FSA (LPFSA)?
A limited purpose flexible spending account (LPFSA) is a type of flexible spending account (FSA) that allows consumers to use pre-tax dollars to cover specialized vision and dental medical expenses out-of-pocket.
How does an LPFSA work?
Consumers can only enroll in an LPFSA through their employer. They then elect a specific amount of money to be taken out of their paycheck pre-tax and their account through their paycheck pre-tax. Unlike a traditional FSA, an LPFSA must be paired with a high-deductible health plan (HDHP) and can be paired with a health savings account (HSA) to cover vision and dental needs before a consumer reaches their deductible.
What are the benefits of an LPFSA?
LPFSAs allow consumers to set aside money pre-tax to pay for out-of-pocket dental and vision expenses, which can save them an average of 30% on medical expenses a year. Consumers can reap even more benefits out of an LPFSA when they pair it with an HSA. Doing so allows them to stretch their tax savings further because they can contribute a maximum amount to both accounts. By using LPFSA dollars to cover dental and vision expenses, HSA dollars can be reserved for covering medical expenses, saved for future medical expenses or invested for growth.
What can I use an LPFSA for?
LPFSA contributions can be used to cover qualified vision and dental expenses. These expenses include fillings, cleanings, vision exams, contact lenses, prescription glasses and cleaning solutions.
What is the LPFSA contribution limit?
The Federal government sets an annual maximum contribution for LPFSAs. For 2020 and 2021, the contribution limit is set at $2,750, which is the same dollar amount for FSAs. Although the Federal government sets a maximum annual LPFSA contribution limit, consumers can choose to contribute a lesser amount. Additionally, employees enrolled in LPFSAs and FSAs may carry over $550 of unused funds to the following year.