Limited Purpose Flexible Spending Account (LPFSA)
People cannot have a Health Savings Account (HSA) and “a standard healthcare FSA [Flexible Spending Account]” simultaneously (“What is a Limited Purpose FSA and How Account Holders Can Use It”). However, people can have an HSA as well as a limited purpose flexible spending account (LPFSA) (“What is a Limited Purpose FSA and How Account Holders Can Use It”). People can use their LPFSA right away by using a payment card given to them by the plan administrator (Fontinelle 2016; Sandall 2016). Then, they have to ask for “reimbursement by check or direct deposit by submitting a claim form – or both” (Fontinelle 2016). While LPFSAs have caveats similar to those found in FSAs, LPFSAs can benefit people greatly when they are paired with HSAs.
People should be aware of restrictions LPFSAs contain. While accountholders can spend FSA funds on medical, dental, and vision services, those with an LPFSA can use their funds for dental and vision services, but not medical services (Helhoski 2016; “What is a Limited Purpose FSA and How Account Holders Can Use It”). Though, some employers may allow their employees to spend their LPFSA funds on “regular qualified medical expenses after you [people] meet your [their] deductible…” (Fontinelle 2016). Similar to FSAs, LPFSAs contain a contribution limit every year, and this limit can be determined by employers (Fontinelle 2016). In addition, people can lose the money in their LPFSA next year, but people may keep at most $500 for next year or “have a two-and-a-half-month grace period” before losing the funds (Fontinelle 2016).
People can take advantage of both LPFSAs and HSAs. Like an HSA and FSA, money in an LPFSA are not taxed, helping people “reduce your [their] taxes…” (“What is a Limited Purpose FSA and How Account Holders Can Use It”). Additionally, people can use LPFSA funds for many dental expenses, such as copayments, “Deductible for dental plan,” sealants “for non-cosmetic purposes,” dentures, bridges, “diagnostic services,” orthodontia, x-rays, etc. (“Eligible Expenses”). While they use these funds for dental services, they can save money in their HSA for other expenses, such as medical treatments (“What is a Limited Purpose FSA and How Account Holders Can Use It”). However, the IRS does not allow people to spend the money from both accounts on “the same eligible expense, even if the expense is considered eligible under both plans” (“What is a Limited Purpose FSA and How Account Holders Can Use It”). Though, when people do not have any money left in their LPFSA, some plan administrators may allow them to receive reimbursement from their HSA (“What is a Limited Purpose FSA and How Account Holders Can Use It”).
LPFSAs have more restrictions than standard FSAs. Namely, people cannot use LPFSA funds for medical expenses. However, people can use LPFSAs along with HSAs. Consequently, people can take advantage of using LPFSA solely on certain expenses, such as dental treatments, while saving HSA funds for medical expenses.