Limited Purpose Flexible

A Limited Purpose Flexible Spending Account (FSA) is a category of tax-advantaged savings account in which employees are allowed to deposit pre-tax contributions for the categories of qualified medical expenses. Contrary to a common FSA that allows for the coverage of health-related expenses of an individual, a Limited Purpose FSA is designed to supplement a Health Savings Account (HSA) or a High Deductible Health Plan (HDHP). The coverage will include costs for dental and vision care services, like routine check-ups, eyeglasses, and braces, but will not cover general health expenses. With the establishment of a Limited Purpose FSA scheme in line with an HSA or HDHP package, the employees can optimize their tax deduction by setting aside funds for their dental and vision care expenses but preserve their HSA funds for future medical utilization, bringing them flexibility and financial support during their healthcare affairs.

Example

One good example of implementing a limited-purpose FSA would be if employee signs up for a High Deductible Health Plan (HDHP) with a Health Savings Account (HSA). Hearing that the HDHP is set up in a way that once high deductible is met, it covers medical expenses, the employee goes for Limited Purpose FSA to supplement their health insurance coverage. Within year, the employee “spends” on dental and vision expenses including routine check-ups, glasses, and braces for example. They can now pay with funds from their Limited Purpose FSA for those eligible expenses, drawing from the pre-tax dollars saved. This way, they may lower their taxable income, optimize their savings, and at the same time, keep their HSA funds available for the future provision of healthcare services, thus adopting a rational approach to their healthcare-related spending.