The Limited Purpose Flexible Spending Account (LPFSA) is a savings account that lets employees set aside money before tax for medical expenditures like vision and dental. Usually, medical insurance does not cover these two areas, so LPFSA comes into use.
Employees with a High-Deductible Healthcare Plan (HDHP) are qualified to open an LPFSA. However, an employer must offer this savings account to be eligible to apply.
The LPFSA is not available for freelancers or self-employed employees. But, if they want to attain health cost tax advantages, they can apply for a Health Savings Account (HSA) if they hold an HDHP.
Moreover, unemployed individuals or retired employees cannot open an LPFSA. The medical expense account is only for individuals currently involved in a company.
Is Enrollment in LPFSA Possible Without HDHP?
The condition for opening a Limited Purpose FSA is to have a qualified HDHP. So, if an individual does not hold an HDHP, they won’t be able to enroll in LPFSA.
Can an Individual Enroll in Both HSA and LPFSA?
According to the Internal Revenue Service (IRS), an employee has to choose between holding an HSA or an LPFSA, but they cannot have both. But this can change if your employer authorizes it.
Who Can Benefit from a Limited Purpose FSA?
LPFSA benefits employees and their dependents, such as spouses, children, or other dependents.
How Much Do I Need to Contribute to an LPFSA?
The Internal Revenue Service (IRS) annually updates the contribution limit for LPFSA. In 2022, the contribution limit went up by $100, totaling $2,850. But, it is best not to save more than required because you will lose the money at the end of the year if it has not been used.
When Can an Employee Use the Limited Purpose FSA?
An employee can use their Limited Purpose FSA while having an HDHP on the following occasions:
If the employer does not offer dental and vision insurance.
If the employer provides only insurance for dental.
If the employer offers only insurance for vision.
Which Dental and Vision Expenses Does an LPFSA Cover?
An LPFSA only covers qualified expenses, which are usually for preventive care. It will not cover any cosmetic costs, such as teeth whitening.
Visits to optometrists, Orthodontists, and dental hygienists will also qualify as an LPFSA medical expense.
Here is a small list of services that will be covered by a Limited Purpose FSA:
What Are the Limitations of a Limited Purpose FSA?
A Limited Purpose FSA is an exceptional savings account that lets you save for dental and vision problems. But, it does have two limitations.
You must be a current employee of a company that offers a Limited Purpose Flexible Saving Account.
The saved funds will not roll over to the following year. You will lose any remaining savings when a new year arrives. But, your employer can offer you a grace period to spend the funds, or you can request a limited rollover of the fund, which only transfers $500 to the following year.