A limited purpose FSA can only be used for vision and dental expenses. It is intended to work in conjunction with an HSA. A healthcare FSA covers all eligible medical expenses.
Both HSAs and FSAs allow you to pay for qualified medical expenses with pre-tax dollars. One key difference, however, is that HSA balances can roll over from year to year, while FSA money left unspent at the end of the year or after a designated grace period is forfeited. You may choose to use a Limited Purpose FSA to pay for eligible heath care expenses and save your HSA dollars for future health care needs. You may use Limited Purpose FSA dollars to reimburse yourself for expenses not covered by your high-deductible health plan, such as:
1. Vision expenses, including: Glasses, frames, contacts, prescription sunglasses, goggles, vision co-payments, optometrists or ophthalmologist fees, and corrective eye surgery
2. Dental expenses, including: Dental care, deductibles and co-payments, braces, x-rays, fillings, and dentures
The grace period is an additional 2.5 months following the plan-year close to incur expenses against the previous plan year’s election. This gives employees some additional time to use remaining funds. If the carryover option is elected, it will replace the grace period option.
The availability of carryover funds differs when carrying over between a healthcare to healthcare FSA versus from the healthcare to limited purpose FSA.
– Healthcare to Healthcare: The carryover amount is available to the participant on the first day of the new plan year. This means that the carryover amount is simultaneously available to pay previous plan-year expenses and current plan-year expenses during the previous plan year run-out period.
– Healthcare to Limited Purpose: The carryover amount is available to the participant on the first day following the end of the run-out period. This means any current-year dental or vision claims incurred during the run-out period that were not reimbursed by a current-year limited purpose election would be reimbursed once the carryover funds are available.
Your elections into the the Dependent Care FSA become available as they are contributed. As you incur daycare expenses, you will be reimbursed up to the amount that has been contributed thus far in the year. For example: You elect $5,000 and have $208 taken out of each paycheck throughout the year. After two (2) pay periods you submit a daycare claim for $500. Your current dependent care balance is $416. You will be reimbursed $416 immediatley and following your next payroll contribution, you will be reimbursed the remaining $84.
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