A Limited FSA, or a Limited Purpose FSA, is one of several pre-tax accounts you may be able to sign up for through your company. It is used to pay for vision and dental expenses that are not covered by insurance.
A Limited Purpose FSA can sometimes be confused with a Medical FSA. While they have similar names and can cover similar expenses, there are some key differences.
Key differences between a Limited Purpose FSA and Medical FSA
Expenses covered
A Medical FSA can be used to pay for your out-of-pocket expenses related to medical care, dental care and vision.
A Limited FSA can only be used to pay for your out-of-pocket expenses related to dental and vision.
In other words, the Limited Purpose FSA is limited to paying for those two types of expenses.
Compatibility with other plans
A Medical FSA is not compatible with a Health Savings Account (another pre-tax account that your employer may offer). This is an either/or situation–you can either have a Medical FSA or have an HSA. You cannot have both accounts at the same time.
A Limited FSA is compatible with a Health Savings Account. You can have both accounts at the same time.
You cannot have a Limited FSA and a Medical FSA at the same time. They are mutually exclusive.
Why would I want a Limited Purpose FSA instead of a Medical FSA?
Depending on what you anticipate spending on health care for you and your family during the year, a Limited Purpose FSA might be the right choice for you.
If your company doesn’t offer vision or dental insurance but they do offer a Limited Purpose FSA, it can be a nice alternative to use to cover those costs. You can even mix and match – if your company offers vision insurance but not dental, you can use the Limited FSA to pay for all your dental expenses and then any out-of-pocket vision expenses.
While the maximum annual contribution for a Limited Purpose FSA is $2,650*, you don’t need to put that much into the account. You can put as little as you want. (Some employers may require you to meet a minimum contribution threshold. Check with your employer to find out if there is a minimum at your company).
Parting thought
A Limited Purpose FSA has one important similarity with a Medical FSA: there is not a guarantee that the money in the account rolls over at the end of the plan year. However, your employer may have the plan set up where the funds can roll. To find out if this option is available at your company, double-check your plan highlights. (Read this for more information on plan highlights).
*Current limit for 2019, subject to change
If you found this article helpful, you may also enjoy these:
- Use one account to cover OOP expenses for dental and vision
- My Life in Benefits: Age 35- Why a Limited FSA was the clear choice
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