FSA vs Limited Purpose FSA
Last updated July 2026
FSA (Flexible Spending Account)
Pre-tax dollars for this year's medical expenses
Advantages
- Available with any health plan, no HDHP requirement
- Full annual election is available on day one of the plan year
- Reduces taxable income, saving 22-37% depending on your bracket
- Employer may contribute additional funds to your FSA
Drawbacks
- Use it or lose it, most funds expire at end of plan year
- Not portable, forfeit remaining balance when you leave your employer
- Cannot invest FSA funds for growth
- Must estimate medical expenses in advance during open enrollment
- Limited rollover: max $640 carryover or 2.5-month grace period (employer's choice)
Limited Purpose FSA (LPFSA)
HSA-compatible FSA restricted to dental and vision expenses
Advantages
- Can be used alongside an HSA (unlike standard FSA)
- Pre-tax dollars for dental and vision expenses
- $3,300 annual limit (2026)
- Preserves HSA balance for investment and long-term growth
- Employer may add contribution above employee election
Drawbacks
- Restricted to dental and vision only (not general medical)
- Use it or lose it, most funds expire at year end
- Not portable, lost when you leave employer
- Only available if your employer offers it
FSA and Limited Purpose FSA both play in tax-advantaged health accounts, but they're aimed at different buyers. FSA is built for employees with predictable annual medical expenses who want to reduce their tax bill this year. Limited Purpose FSA is built for hSA holders who want pre-tax funding for dental and vision without depleting HSA balance. Which one fits depends on which of those descriptions sounds more like you.
Feature Comparison
| Feature | FSA (Flexible Spending Account) | Limited Purpose FSA (LPFSA) |
|---|---|---|
| Annual Contribution Limit | $3,300 individual (2026) | $3,300 individual (2026) |
| Eligible Expenses | -- | Dental and vision expenses only |
| Rollover Rules | Limited: $640 carryover OR 2.5-month grace period | $640 carryover OR 2.5-month grace period |
| Account Ownership | Employer-owned; lost when you leave | Employer-owned; lost when you leave |
| Combinable With Other Accounts | -- | Yes, specifically designed to work with an HSA |
| Tax Advantage | Pre-tax contributions only | Pre-tax contributions |
| Eligibility | Available with any employer health plan | Requires employer to offer LPFSA option |
| Withdrawal Rules | Tax-free for qualified medical expenses | Reimbursement claims for dental and vision only |
| Investing Options | No investment options | -- |
| Retirement Use | None, medical expenses only | -- |
Limited Purpose FSA (LPFSA) Wins
Limited Purpose FSA takes it overall (7/10 vs 6/10), but FSA is still the sharper pick for employees with predictable annual medical expenses who want to reduce their tax bill this year.
Limited Purpose FSA's standout strength: Can be used alongside an HSA (unlike standard FSA). Its biggest drawback (restricted to dental and vision only (not general medical)) is easier to live with than FSA's (use it or lose it, most funds expire at end of plan year). FSA isn't out of the running though — its own standout strength is available with any health plan, no HDHP requirement. If you fit the profile of employees with predictable annual medical expenses who want to reduce their tax bill this year, that alone can flip the decision.
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