A Limited Purpose Flexible Spending Account, or LPFSA, is a pre tax savings account employees can use specifically for dental and vision expenses. It works alongside a Health Savings Account, which is why it is called limited. Instead of covering general medical costs like a standard FSA, the LPFSA focuses only on eligible vision and dental expenses so employees with an HSA can still take advantage of FSA tax savings without breaking IRS rules. For anyone enrolled in a high deductible health plan with an HSA, an LPFSA can be a smart way to set aside extra tax free money.
How does a Limited Purpose FSA differ from a regular FSA?
A regular FSA covers a wide range of out of pocket medical expenses such as doctor visits, copays, prescriptions, and many over the counter items. A Limited Purpose FSA limits reimbursement to vision and dental care. This restriction exists because the IRS does not allow people to use both a full medical FSA and an HSA at the same time. The LPFSA offers a middle ground. Employees can keep their HSA for major medical expenses while using the LPFSA for routine dental and vision needs.
Account Type | What It Covers | HSA Compatible |
Regular FSA | General medical, dental, and vision costs | No |
Limited Purpose FSA | Dental and vision only | Yes |
Can employees have both a Limited Purpose FSA and a Health Savings Account?
Yes. Employees can contribute to both an HSA and an LPFSA at the same time. The HSA covers larger medical expenses such as deductibles, hospital bills, and prescriptions. The LPFSA covers dental cleanings, exams, contact lenses, glasses, and orthodontia. Some plans allow employees to convert their LPFSA into a post deductible FSA later in the year so they can use it for medical expenses after meeting the required deductible.
What expenses are covered under a Limited Purpose FSA?
An LPFSA covers eligible dental and vision care expenses. Common examples include:
Vision exams
Glasses and contact lenses
LASIK surgery
Dental cleanings
Fillings and crowns
Orthodontia
It does not cover doctor visits, hospital care, prescriptions, or other general medical expenses. Those must go through the HSA.
How much can employees contribute to a Limited Purpose FSA each year?
For 2025, employees can contribute up to 3,200 dollars to a Limited Purpose FSA. Contributions are pre tax, which helps reduce taxable income. LPFSAs follow the use it or lose it rule, meaning any unused funds typically expire at the end of the plan year. Some employers allow a grace period or a rollover of up to a small amount, but these features are optional.
What happens to unused Limited Purpose FSA funds at the end of the year?
If the plan does not offer a rollover or grace period, unused funds are forfeited. Employers can help employees avoid losing money by sending reminders during open enrollment and throughout the year. If a plan does offer rollover or a grace period, it should be communicated clearly so employees know how long they have to spend their balance.
Key Takeaways
Summary | |
Purpose | LPFSAs offer pre tax savings for dental and vision expenses. |
Difference from FSA | LPFSAs exclude general medical expenses and work with HSAs. |
Compatibility | Employees can use both an HSA and LPFSA for broader savings. |
Contribution Limit | 3,200 dollars in 2025 with possible rollover options. |
Restrictions | Use it or lose it unless the employer offers grace or rollover. |
FAQs
Can employees use an LPFSA for medical expenses?
Not unless the plan converts to a post deductible FSA after the deductible is met.
Do LPFSA funds come on top of HSA contributions?
Yes. Employees can contribute to both accounts independently.
Is an LPFSA worth it if someone already has great dental and vision insurance?
Often yes. Pre tax savings can reduce the cost of routine care even with insurance.
