What is a Limited Purpose FSA?
A Limited Purpose FSA (LP-FSA) is a tax-advantaged savings account that allows employees to set aside pre-tax dollars to pay for eligible dental and vision expenses while maintaining eligibility for a Health Savings Account (HSA). Unlike a traditional healthcare FSA that covers a broad range of medical expenses, an LP-FSA restricts reimbursements to dental care, vision care, and in some cases, post-deductible preventive care expenses.
The primary purpose of an LP-FSA is to provide HSA-eligible individuals with additional tax savings for dental and vision costs without disqualifying them from HSA contributions. This account type specifically addresses the IRS restriction that prevents individuals from contributing to an HSA while also having access to a general purpose healthcare FSA.
Related terms: Health Savings Account (HSA), Flexible Spending Account (FSA), High-Deductible Health Plan (HDHP), tax-advantaged account
Who is eligible for a Limited Purpose FSA?
To be eligible for an LP-FSA, you must be enrolled in a High-Deductible Health Plan (HDHP) with an active Health Savings Account (HSA). Your employer must also offer an LP-FSA as part of their benefits package.
Self-employed individuals and retirees are not eligible for LP-FSAs because these accounts are restricted to employees at companies that offer health insurance and FSA benefits. Anyone who is eligible to receive medical expense reimbursement under a general purpose healthcare FSA—whether their own or a spouse's or parent's—cannot contribute to an HSA or an LP-FSA.
What expenses are eligible for Limited Purpose FSA reimbursement?
LP-FSA funds can be used for 4 primary expense categories:
- Dental expenses: cleanings, exams, fillings, crowns, bridges, braces, dentures, dental implants, root canals, and orthodontia
- Vision expenses: eye exams, prescription eyeglasses, prescription sunglasses, contact lenses and solution, LASIK surgery, and vision correction procedures
- Post-deductible preventive care: expenses that qualify after meeting the HDHP deductible (availability varies by plan)
- Dependent expenses: eligible dental and vision costs for spouses and tax dependents, even if not enrolled in your health plan
LP-FSAs cannot be used for general medical expenses, over-the-counter medications without a prescription, cosmetic procedures like teeth whitening, or non-prescription items like toothpaste and dental floss. All expenses must be incurred during the plan year to qualify for reimbursement.
How much can you contribute to a Limited Purpose FSA?
The IRS sets annual contribution limits for LP-FSAs that match the limits for traditional healthcare FSAs. For 2026, the contribution limit is $3,400 per individual. This limit represents the maximum amount an employee can elect to contribute from their paycheck on a pre-tax basis.
The minimum contribution requirement varies by employer but typically ranges from $120 to $260 annually. Both spouses can each contribute the maximum amount to their respective LP-FSAs if both have access to the benefit through their employers. Employer contributions and carryover dollars do not count toward the annual contribution limit in most plans.
How does a Limited Purpose FSA work with an HSA?
An LP-FSA is specifically designed to complement an HSA rather than replace it. IRS rules prevent individuals from having both a general purpose healthcare FSA and an HSA simultaneously, but LP-FSAs are structured to avoid this conflict by limiting eligible expenses to dental and vision care.
The strategic advantage of pairing these accounts is that you can use your LP-FSA for immediate dental and vision expenses while preserving your HSA funds for long-term growth and future medical costs. Since HSA funds roll over indefinitely and can be invested, many individuals maximize their HSA contributions for retirement healthcare expenses while using the LP-FSA for predictable near-term dental and vision needs. Both accounts offer pre-tax contributions, creating compounded tax savings.
What happens to unused Limited Purpose FSA funds?
LP-FSAs follow either a carryover provision or a grace period, depending on what your employer's plan allows. The carryover provision permits participants to roll over a limited amount of unused funds into the next plan year. For 2026, the maximum carryover amount is $680. Any funds exceeding this amount are forfeited.
Alternatively, some plans offer a grace period of up to 2.5 months after the plan year ends during which you can incur expenses and use remaining funds. Plans cannot offer both the carryover and grace period—employers must choose one approach. The use-it-or-lose-it nature of FSAs makes careful contribution planning essential to avoid forfeiting funds.
When can you enroll in a Limited Purpose FSA?
You can enroll in an LP-FSA during 3 specific enrollment windows. First, within 31 days of becoming eligible for benefits as a new employee. Second, during your employer's annual open enrollment period, which typically occurs in the fall for coverage beginning January 1. Third, within 60 days of experiencing a qualifying life event that creates a special enrollment opportunity.
LP-FSAs do not continue automatically from year to year. You must actively re-enroll each year during the open enrollment period. If you miss the enrollment window, you cannot enroll until the following plan year unless you experience a qualifying life event such as marriage, birth of a child, or change in employment status.
How do you submit claims for Limited Purpose FSA reimbursement?
Claims can be submitted through 3 primary methods. You can use an FSA debit card at the point of service if the provider accepts VISA, then submit supporting documentation to your FSA administrator afterward. You can pay out of pocket and submit a claim form with receipts through your administrator's online portal, mobile app, email, fax, or mail for reimbursement via check or direct deposit. You can also submit an unpaid provider invoice or Explanation of Benefits (EOB) for direct reimbursement before paying the bill.
Most expenses require substantiation with documentation showing your name, provider name, date of service, description of service, and amount charged. The full annual contribution amount is available on the first day of the plan year regardless of how much has been deducted from your paycheck. Claims must be submitted by March 31 of the following year for expenses incurred during the prior calendar year.
How does a Limited Purpose FSA compare to similar accounts?
A Limited Purpose FSA is often compared to 3 related healthcare savings accounts:
| Related Account | Key Distinction | Usage Context |
|---|---|---|
| Healthcare FSA | Healthcare FSA covers all medical, dental, and vision expenses; LP-FSA is restricted to dental and vision only | Employees without an HSA who want comprehensive pre-tax healthcare expense coverage |
| Health Savings Account (HSA) | HSA funds roll over indefinitely and can be invested for growth; LP-FSA has use-it-or-lose-it rules with limited carryover | Long-term healthcare savings and retirement planning with HDHP enrollment |
| Dependent Care FSA | Dependent Care FSA covers childcare and adult dependent care services; LP-FSA covers dental and vision expenses | Paying for daycare, preschool, or elder care services with pre-tax dollars |