HRA vs Limited Purpose FSA
Last updated July 2026
HRA (Health Reimbursement Arrangement)
Employer-owned reimbursement arrangement for medical expenses
Advantages
- 100% employer-funded, no employee contribution required
- Reimbursements are tax-free to the employee
- Compatible with any health plan (not limited to HDHP)
- Employers can use HRAs to offer flexible health benefits
- Some HRA variants (QSEHRA, ICHRA) can reimburse individual insurance premiums
Drawbacks
- You do not own the account, funds stay with employer if you leave
- No employee contributions allowed (some variants excepted)
- Cannot be invested for growth
- Rollover depends entirely on employer plan design
- Reimbursement claims process can be slow
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
HRA and Limited Purpose FSA both play in tax-advantaged health accounts, but they're aimed at different buyers. HRA is built for employees at companies that offer an HRA as their primary health benefit funding vehicle. 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 | HRA (Health Reimbursement Arrangement) | Limited Purpose FSA (LPFSA) |
|---|---|---|
| Annual Contribution Limit | Employer-set; 2026 QSEHRA max $6,150 individual / $12,450 family | $3,300 individual (2026) |
| Eligible Expenses | -- | Dental and vision expenses only |
| Rollover Rules | Depends on employer plan design | $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 | Employer contribution + tax-free reimbursements | Pre-tax contributions |
| Eligibility | Available with most employer health plans | Requires employer to offer LPFSA option |
| Withdrawal Rules | Reimburses eligible medical expenses only | Reimbursement claims for dental and vision only |
| Investing Options | No investment options | -- |
| Retirement Use | None outside medical | -- |
Limited Purpose FSA (LPFSA) Wins
Limited Purpose FSA takes it overall (7/10 vs 6/10), but HRA is still the sharper pick for employees at companies that offer an HRA as their primary health benefit funding vehicle.
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 HRA's (you do not own the account, funds stay with employer if you leave). HRA isn't out of the running though — its own standout strength is 100% employer-funded, no employee contribution required. If you fit the profile of employees at companies that offer an HRA as their primary health benefit funding vehicle, that alone can flip the decision.
Related Comparisons
HSA vs HRA
Employee-owned triple-tax-advantaged HSA meets the employer-owned HRA, which is the smarter benefit?
FSA vs HRA
Employee-elected pre-tax FSA meets the employer-owned reimbursement arrangement, which fits your benefits?
HSA vs Limited Purpose FSA
The triple-tax-advantaged HSA meets the HSA-compatible dental-and-vision FSA, why you might use both.