Level up your health savings: Pairing LPFSA with HSA

Internal Revenue Service (IRS) rules clarify that you can't contribute to a Health Savings Account (HSA) and a Flexible Spending Account (FSA) in the same plan year. But there may be opportunities where you can pair an HSA with a certain type of FSA, specifically a Limited Purpose Flexible Spending Account (LPFSA). Read on to learn how pairing these two accounts can potentially help you maximize your health care savings.

Understanding FSA types

There are several types of FSAs available to employees:

• Healthcare FSA — A healthcare FSA allows you to set aside pre-tax dollars to pay for eligible medical expenses, including dental and vision costs. However, having a healthcare FSA makes you ineligible to contribute to an HSA.
• LPFSA — A Limited Purpose FSA can only be used for eligible dental and vision expenses. Because it's limited in scope, it doesn't disqualify you from contributing to an HSA.
• DCFSA — A Dependent Care Flexible Spending Account helps cover dependent care expenses like daycare and elder care. It also does not impact HSA eligibility.

For a deeper comparison of these account types, check out this article.

The bottom line: if you have access to an HSA or a healthcare FSA, choosing the HSA paired with an LPFSA may be the smartest move for maximizing your savings.

HSA + LPFSA: What are the benefits?

When you enroll in a high-deductible health plan (HDHP) and pair your HSA with an LPFSA, you unlock several tax-saving benefits:

#1 Max your annual HSA contributions

By using your LPFSA for dental and vision expenses, you free up your HSA dollars. This means you can keep more in your HSA and potentially max out your annual contribution.

Your HSA funds can be used for qualified medical expenses or saved for future needs. You can even shop for eligible items at the HSA store.

#2 Max your annual tax savings

Both your HSA and LPFSA contributions are made with pre-tax dollars, reducing your taxable income. This means you get more tax savings than with either account alone.

#3 Get your dental and vision money immediately

Unlike an HSA, your full LPFSA election amount is available on the first day of your plan year. So you can take care of dental and vision expenses right away without waiting to accumulate funds.

#4 Invest your HSA for the long-term

With an LPFSA covering your dental and vision costs, your HSA balance can grow. Consider long-term investing your HSA funds for potential growth over time.

Two things to keep in mind as you plan LPFSA contributions

1. Know the current HSA contribution limits. Check this page for the latest IRS contribution limits for HSAs. Understanding these limits helps you plan your contributions across both accounts effectively.

2. Budget your LPFSA carefully. Check out Top 10 ways to spend your LPFSA for ideas. Remember that LPFSA funds are typically use-it-or-lose-it — unlike HSA funds, they generally must be used by the end of the plan year or within a grace period. Your full election is available on the first day of the new plan year.

To be eligible for an HSA and LPFSA pairing, you must be enrolled in a high-deductible health plan. Once you have the right health plan in place, you can invest the money in your HSA and take a long-term view of your health savings. HSA funds never expire, and at age 65, your HSA works like a 401(k) contribution match for health care.

For more information, visit the Help Center or browse the HSA Store.