Limited Purpose FSA
Navigating Financial Wellness: Unveiling the Limited Purpose FSA
Unpacking the Limited Purpose FSA
A limited purpose flexible spending account (FSA) emerges as a strategic financial tool, offering the opportunity to allocate pre-tax funds for vision and dental expenses not covered by insurance. Distinguished from standard or medical FSAs, the limited purpose FSA uniquely pairs with a health savings account (HSA).
Deciphering Eligibility: Who Can Opt for a Limited Purpose FSA?
Exclusive to individuals enrolled in a high deductible health plan (HDHP), the eligibility for opening a limited purpose FSA rests in the hands of the employer. Employers have the discretion to offer this option to their employees, especially if they provide an HDHP with an HSA.
Strategic Application: When to Leverage a Limited Purpose FSA
The limited purpose FSA aligns its purpose with an HDHP and HSA, catering specifically to out-of-pocket vision and dental expenses. Common scenarios warranting the use of a limited purpose FSA include situations where an employer offers an HDHP without vision or dental insurance or provides an HDHP with only vision or dental coverage. Given the yearly contribution limits of HSAs, individuals may opt for a limited purpose FSA to set aside additional pre-tax funds dedicated to covering vision and dental expenses.
Navigating Limits: Contribution Cap for Limited Purpose FSA
Annually determined by the Internal Revenue Service (IRS), the contribution limit for limited purpose FSAs, along with regular FSAs, was set at $2,750 for the year 2020.
Boundaries and Flexibilities: Restrictions on Limited Purpose FSA Usage
Two primary restrictions govern the utilization of a limited purpose FSA. The first mandates that employees must be enrolled in an eligible HDHP and HSA. The second restriction pertains to spending flexibility. Typically mirroring a regular FSA, unused funds at the end of the year do not roll over, and employees forfeit any remaining balance. Employers may offer a grace period at the beginning of the year for fund utilization or permit a partial rollover, capped at $500. However, it’s important to note that plans may opt for either a grace period or a partial rollover but not both.