The term “limited purpose FSA” might sound confusing at first, but understanding it could mean more savings on your next dental or eye care bill.
It’s easy to mix up the various health spending accounts, especially when the rules around what’s covered aren’t always clear.
In this guide, we’ll walk you through exactly what a limited purpose flexible spending account is, how it works, what makes it different from a regular FSA, and which expenses qualify.
Whether you're sorting out benefits for your household or working in a dental office trying to explain coverage to patients, understanding how a limited purpose FSA works can make a real difference.
This article lays out the key details in a straightforward way that’s easy to follow.
What is a limited purpose FSA?
A Limited Purpose FSA (LP-FSA) is a type of flexible spending account that’s designed specifically for dental and vision expenses.
Unlike a regular FSA, which can be used for a wide range of medical costs, a limited purpose FSA is restricted to certain categories.
Why is it called “limited”?
The name says it all - it’s “limited”, because the funds can only be used for certain things, like dental and vision costs.That’s it.
But this type of account plays a very specific and important role, especially if you have a Health Savings Account (HSA).
Here’s how it works:
- You contribute pre-tax dollars to your limited FSA through your employer.
- That money can then be used to pay for eligible dental and vision expenses.
- You don’t pay taxes on the money you put in or use, which means you save.
This type of account is often offered alongside an HSA, since IRS rules don’t allow you to have a regular medical FSA and an HSA at the same time.
But a limited purpose flexible spending account is an exception, it’s allowed because it doesn’t overlap with HSA-eligible expenses.
So, if you have an HSA and still want to put aside extra money for things like braces, dental cleanings, eye exams, glasses, or contacts, a limited FSA gives you that option.
In short:
A limited purpose FSA is a tax-free way to save and pay for your dental and vision needs, without affecting your HSA.
How Does a Limited Purpose FSA Work?
A Limited Purpose FSA is offered through your employer.
You choose how much money to set aside for the year, and that amount is taken from your paycheck before taxes.
The money is meant to cover dental and vision expenses only, not general medical costs.
Even if you haven’t contributed the full amount yet, the total you choose is available to use right away at the start of the plan year.
You can use this account alongside an HSA, which is why it exists.
Using both gives you extra tax savings and helps you preserve your HSA funds for the future. Here's why it's beneficial to combine them:
- Maximize tax savings: Both contributions are pre-tax, reducing your taxable income even further.
- Save your HSA for later: Use your Limited FSA for current dental and vision costs, and let your HSA grow for long-term medical needs or retirement.
- Double your coverage: You get two accounts to manage different types of health expenses more efficiently.
The IRS doesn’t allow a regular FSA and HSA together, but a limited FSA is okay because it’s restricted to dental and vision.
There’s one catch: it’s usually “use it or lose it”.
If you don’t spend the money by the end of the year, you might lose what’s left, unless your employer offers a short grace period or lets you roll over a small amount.
To recap:
- You set it up through your employer
- It lowers your taxes
- It covers dental and vision only
- It works with an HSA
- Use of the funds is required before year-end
Limited Purpose FSA vs Regular FSA: Key Differences
If you're comparing an LP-FSA to a regular FSA, the biggest difference is what the money can be used for.
You don’t need to memorize the IRS code. Just remember:
- Regular FSAs are more flexible, but can’t be used with an HSA
- Limited FSAs are more specific, but can be used alongside an HSA
What Is Limited Purpose FSA Eligibility?
Wondering if you can get a Limited Purpose FSA? Here’s what you need to know, without the complicated fine print.
1. It Has to Be Offered by Your Employer
You are unable to sign up for a limited FSA on your own. It must be included as part of your employer- provided benefits package. If your employer doesn’t offer it, unfortunately, it’s not an option.
2. You Need to Have an HSA
A limited purpose FSA is made for people who already have a Health Savings Account (HSA).
The IRS doesn’t allow you to have a regular medical FSA and an HSA at the same time, but it does allow a limited FSA, since it only covers dental and vision expenses.
So, if you’re enrolled in a high-deductible health plan and have an HSA, you’re probably eligible.
3. You Have to Enroll at the Right Time
You usually sign up during your employer’s open enrollment period, which happens once a year.
If you experience a significant life event, like getting married or having a baby, you might be able to enroll or adjust your plan outside of that window.
In plain terms:
If your employer offers it, and you already have an HSA, you're likely eligible for a limited purpose FSA. It’s a way to save extra money (tax-free) just for dental and vision care.
What Is the Use-It-or-Lose-It Rule?
With a Limited Purpose Flexible Spending Account, you are required to use the money within the plan year, or you lose whatever’s left.
Dentist examining a patient’s teeth – example of a limited purpose FSA eligible dental expense.
Some employers may offer a short grace period (about 2.5 months) or let you carry over a small amount (up to $640 in 2025), but not both, and not always.
What Are the Limited Purpose FSA-Eligible Expenses?
A Limited Purpose Flexible Spending Account (LP-FSA) covers only dental and vision expenses. It does not include general medical costs.
Common Eligible Dental Expenses:
- Routine dental cleanings and exams
- Fillings, crowns, root canals
- Braces and orthodontic treatment (eligibility may vary depending on plan and payment timing)
- Dentures and dental implants
- Dental X-rays
- Dental sealants and fluoride treatments (may vary by plan)
- Bridges and other restorative dental procedures
Common Eligible Vision Expenses:
- Eye exams
- Prescription glasses and frames
- Contact lenses and cleaning solutions
- LASIK, PRK, and other corrective eye surgeries
- Vision therapy (when prescribed)
- Eyeglass repairs and accessories
- Certain vision-related medications (with a prescription)
What Expenses Are Not Covered by a Limited Purpose FSA?
Here are some examples of expenses typically not eligible for reimbursement under an LP-FSA:
- Teeth whitening
- Cosmetic dental procedures done solely for appearance (e.g., veneers for cosmetic reasons)
- Non-prescription sunglasses or general eyewear accessories
- General medical expenses like doctor visits or prescription drugs unrelated to dental or vision
- Over-the-counter items not related to dental or vision care, unless accompanied by a prescription or a Letter of Medical Necessity
- Cosmetic surgeries and treatments that are not considered dental or vision care
If you're ever unsure whether an expense qualifies, check directly with your FSA provider or your employer’s HR department before making the purchase. This helps avoid surprises and ensures your expense can be reimbursed.
How Much Can You Contribute to a Limited Purpose FSA?
In 2025, you can put in up to $3,300 to a Limited Purpose FSA. This limit is set by the IRS and can change each year.
You pick how much to contribute during your employer’s open enrollment period.
The money is taken out of your paycheck before taxes, so it lowers your taxable income. Only contribute what you think you will spend.
If you don’t use the money by the end of the year, you might lose it, depending on your plan.
Can You Use a Limited Purpose FSA If You Have an HSA?
Yes, you can, and that’s exactly what it’s designed for.
A Limited Purpose FSA is meant to work with a Health Savings Account (HSA).
While you can’t have a regular medical FSA and an HSA at the same time, the IRS allows a limited FSA because it only covers dental and vision expenses.
This lets you save even more pre-tax money for specific care without affecting your HSA.
How to Make the Most of Your LP-FSA and HSA
If you have both a Limited Purpose FSA and an HSA, here’s the easiest way to use them:
- Use your LP-FSA for dental and vision expenses
- Save your HSA for other medical costs or future needs
A Quick Example:
Let’s say you have $1,500 in your LP-FSA and $6,000 in your HSA.
You get a $1,200 bill for a dental visit and new glasses.
You could pay with your HSA, but that would bring your balance down to $4,800.
Instead, if you use your LP-FSA, your HSA stays full, and you still covered your costs.
This matters because:
- HSA money rolls over every year and stays with you, even if you leave your job
- LP-FSA money usually expires at the end of the year if you don’t use it
One rule to remember:
You can’t use both accounts to pay for the same thing. That’s called double-dipping, and it’s not allowed.
Use your LP-FSA first. Save your HSA for later. That way, you won’t waste any money, and you’ll be better prepared for future health costs.
Is a Limited Purpose FSA a Good Choice for Me?
If you have an HSA and expect dental or vision costs, a Limited Purpose FSA can help you save more.
Use it for things like cleanings, braces, or glasses and save your HSA for other medical expenses or future needs.
It’s a smart option if:
- You have a high-deductible health plan
- Your employer offers it
You want to save on taxes and plan aheadIt’s not a must-have for everyone, but if you know you’ll use it, it can help you keep more of your paycheck and cover out-of-pocket costs without dipping into your long-term savings.
What Happens to Your Limited FSA if You Change Jobs?
Unlike an HSA, your Limited Purpose FSA doesn’t follow you when you leave a job.
Here’s what usually happens:
- You lose access to unused funds unless you qualify for COBRA continuation coverage
- You may be able to submit claims for expenses made before your last day — check your plan’s rules
- Some employers offer a short run-out period to submit old claims after leaving
If you’re planning to leave your job, try to use up your LP-FSA funds before your last day. Otherwise, you could lose what’s left.
Dental teams can support patients during transitions by improving benefits tracking, see why dental insurance verification is critical to dental RCM success in 2025.
Common Mistakes People Make with Limited Purpose FSAs - and How to Avoid Them
Even with the best intentions, it’s easy to make a few missteps when using a Limited Purpose FSA.
Here’s what to watch out for, and how to stay on track:
Putting in more money than you’ll actually use
It might sound smart to contribute a lot, but if you don’t need that much for dental and vision this year, you could lose what’s left over.
Instead, look at what you spent last year, and only put in what you think you’ll really use.
Forgetting the deadline
FSAs don’t last forever. In most cases, if you don’t spend the money by the end of the plan year, it disappears.
Some plans give you a little extra time or let you roll over a small amount, just make sure you know your plan’s rules.
Practices can help avoid last-minute issues by applying tips to accelerate dental claims processing, making sure patients get reimbursed before deadlines hit.
Mixing up your accounts
You cannot reimburse the same expense from both accounts (double-dipping), as this is not allowed.
Use one account per expense, and keep your receipts just in case.
Overlooking your family’s expenses
Your Limited Purpose FSA can usually be used for your spouse and kids, too. If they need glasses, contacts, or have a dental visit coming up, those costs count.
Don’t miss out on savings by only thinking about your own care.
Not saving proof of your purchases
Hold onto your receipts and documentation.
If there’s ever a question about whether something was eligible, having that info will make the reimbursement process much smoother.
Keeping clean records also helps avoid the most common dental billing errors that delay payments or cause rejections.
How Wisdom Can Help
Limited Purpose FSAs can be a smart way for patients to save , but only if billing is done right.
At Wisdom, we partner with dental practices to take the confusion out of dental insurance, eligibility, and claims.
If your team is spending more time chasing payments than caring for patients, it’s time to streamline your billing process.
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