Anyone who has read the HSA rules has hit the same wall. You cannot contribute to a health savings account in any month you are also covered by a general purpose health flexible spending account, because the IRS treats that FSA as other coverage duplicating your high deductible plan. So you pick one, and most people pick the HSA.
The limited purpose FSA is the exception the IRS wrote into the rules: a health FSA stripped down to dental and vision, which costs you nothing on the HSA side. Everything below comes from the IRS’s own revenue procedures, rulings and publications, checked on September 5, 2026. This is a summary of published rules and not tax advice for your return, and your employer’s plan document can be stricter than the tax code.
What Is a Limited Purpose FSA?
A limited purpose FSA (often written LPFSA, and called a limited expense health care FSA in the federal employee program) is an employer-sponsored account funded by pre-tax salary reductions that reimburses only a narrow slice of medical spending: dental care, vision care, and preventive care.
The governing authority is Revenue Ruling 2004-45. It starts from the general rule that someone covered by an HDHP and a health FSA that reimburses ordinary medical expenses is not an eligible individual for HSA purposes, then carves out exceptions. The first is the limited purpose arrangement: a health FSA that pays or reimburses benefits only for “permitted coverage” but not for long-term care services, plus preventive care.
Publication 969 says the same in plainer language. A limited purpose health FSA can reimburse the items on the permitted-coverage list except long-term care, and can also reimburse preventive care because preventive care is payable without satisfying the deductible. That list is accidents, disability, dental care, vision care, telehealth and other remote care. In practice employers build the account around dental and vision, which is exactly how FSAFEDS, the federal government’s own FSA program, describes it.
The logic is simple once you see it. HSA eligibility fails when you have other coverage that overlaps the high deductible plan, and dental and vision are coverage that section 223 already disregards.
How It Works
You elect an annual amount during open enrollment. Your employer withholds it in equal pieces from each paycheck before federal income tax and payroll taxes, which is why the account beats paying out of your checking account even before you count the HSA benefit. Three mechanics matter more than the rest.
The full election is available on day one. Publication 969 lists this among the benefits of an FSA: you can use the account even if the money has not yet been credited to it. Elect $2,000 and need a crown in February, and the $2,000 is there in February. That is a real advantage over an HSA, where you can only spend what you have banked.
Substantiation is on you. The plan needs a written statement from an independent third party showing the expense was incurred and what it cost, plus your statement that it was not reimbursed elsewhere.
The post-deductible switch is optional, not automatic. Revenue Ruling 2004-45 also blesses a post-deductible health FSA, which reimburses nothing until the HSA minimum annual deductible is satisfied and then opens up to general medical expenses. Some employers combine the two designs, so the account is dental-and-vision-only early in the year and general purpose after you hit the deductible. The ruling is strict about the threshold: no benefits may be paid before the section 223 minimum annual deductible is met, which is $1,700 self-only or $3,400 family for 2026 and $1,750 or $3,500 for 2027. Where the plan and the FSA use different deductibles, your HSA contributions are capped by the lower of the two.
One hard limit: Publication 969 says self-employed people are not eligible for FSAs at all. With no employer, see HSA for the self-employed and HSAs without insurance instead.
The 2026 and 2027 Contribution Limits
A limited purpose FSA is capped by the same section 125(i) salary reduction limit as any other health FSA. For tax years beginning in 2026 that limit is $3,400 and the maximum carryover is $680, per Revenue Procedure 2025-32. The IRS newsroom release on 2026 inflation adjustments carries the identical pair, and FSAFEDS shows the same figures on its enrollment page.
| Limit (dollars) | 2026 | 2027 |
|---|---|---|
| Health FSA and limited purpose FSA salary reduction cap | $3,400 | Not yet published |
| Maximum FSA carryover, if the plan allows one | $680 | Not yet published |
| HSA contribution, self-only | $4,400 | $4,500 |
| HSA contribution, family | $8,750 | $9,000 |
| HSA catch-up contribution, age 55 or older | $1,000 | $1,000 |
| HDHP minimum annual deductible, self-only | $1,700 | $1,750 |
| HDHP minimum annual deductible, family | $3,400 | $3,500 |
The HSA and HDHP figures come from Revenue Procedure 2025-19 for 2026 and Revenue Procedure 2026-24 for 2027. The catch-up is fixed in statute, not indexed.
Be careful with the blank cells. The IRS sets the health FSA limit in its annual inflation-adjustment revenue procedure, normally published in October, and as of September 5, 2026 no such document exists for tax year 2027. Benefit consultancies publish projections months ahead, and a projected $3,500 limit with a $700 carryover is circulating widely right now. Those are estimates, not law.
Stacked, the 2026 numbers are worth real money. A single filer with self-only HDHP coverage can move $4,400 into an HSA and $3,400 into a limited purpose FSA, which is $7,800 routed around federal income tax and payroll taxes. FSAFEDS puts the average saving on FSA dollars at about 30 percent, roughly $1,000 on a full $3,400 election.
What Qualifies and What Does Not
The FSA can only reimburse expenses that count as medical care under section 213(d), and Publication 502 is the operative list. Inside that list, the limited purpose design narrows you to dental and vision.
| Expense | Reimbursable by a limited purpose FSA | Why |
|---|---|---|
| Teeth cleanings, exams, X-rays, sealants, fluoride treatment | Yes | Publication 502 treats prevention of dental disease as medical care |
| Fillings, braces, extractions, crowns, dentures | Yes | Publication 502 lists these under treatment to alleviate dental disease |
| Eye exams | Yes | Publication 502, Eye Exam |
| Eyeglasses and contact lenses needed for medical reasons, plus saline and cleaner | Yes | Publication 502, Eyeglasses and Contact Lenses |
| Laser eye surgery or radial keratotomy to treat defective vision | Yes | Publication 502, Eye Surgery |
| Preventive care under the HDHP safe harbor | Yes | Revenue Ruling 2004-45 and Publication 969 |
| Doctor visits, urgent care, ER, labs, imaging | No, unless the plan has a post-deductible feature and you have met the deductible | Revenue Ruling 2004-45, Situation 4 |
| Prescriptions unrelated to dental or vision care | No, same post-deductible condition | Revenue Ruling 2004-45 |
| Teeth whitening | No | Publication 502 lists it among expenses that are not includible |
| Cosmetic procedures | No | Publication 502, Cosmetic Surgery |
| Health insurance or dental and vision plan premiums | No | Publication 969 bars FSA reimbursement of premiums |
| Long-term care services | No | Revenue Ruling 2004-45 excludes long-term care from the limited purpose design |
If you are sizing an election, price the work first. Our cash-price guides for a teeth cleaning, a dentist visit, an eye exam, glasses, braces and LASIK will get you a real total. Elect that, not a round number.
Carryover, Grace Periods, and the Trap for HSA Holders
FSAs are use-it-or-lose-it by default. Publication 969 allows a plan to soften that in one of two ways, and only one.
A carryover lets up to $680 of unused 2026 money follow you into the next plan year without reducing what you can elect for that year. A grace period gives you up to two and a half months after the plan year ends to incur expenses against the leftover balance. Notice 2013-71 established the carryover and made clear a plan adopting it cannot also offer a grace period. Plans may set a lower carryover, or offer neither.
Here is where a limited purpose FSA quietly protects you. If a general purpose health FSA carries money into the next year, you are covered by disqualifying other coverage for that entire next plan year and your HSA contributions stop. Publication 969 tolerates grace-period coverage under a general purpose FSA only if the prior year’s balance was zero. A limited purpose FSA has no such problem, because it was never disqualifying in the first place. That is a real reason to convert rather than simply drop an FSA when you move to an HSA-qualified plan. The full comparison lives on HSA vs FSA, and the employer-funded version of the idea is on HRA vs HSA.
Who It Is Good For and Who Should Skip It
It is good for you if you have predictable dental or vision spending, you are already contributing to an HSA, and you want that HSA balance to keep compounding instead of being drained by a crown. It is also good if you need expensive work early in the plan year, because the whole election is available before you have funded it. Orthodontics is the classic case.
Skip it if your dental and vision spending is small and genuinely unpredictable. The forfeiture risk is real, and $680 of carryover only protects the tail. Skip it too if you are self-employed or between jobs, because you cannot have one, and think twice if your employer offers neither a carryover nor a grace period.
Limited Purpose FSA vs Health FSA vs HSA
| Feature | Limited purpose FSA | General purpose health FSA | HSA |
|---|---|---|---|
| Lets you keep contributing to an HSA | Yes | No | Not applicable |
| 2026 contribution cap | $3,400 | $3,400 | $4,400 self-only, $8,750 family |
| Who can fund it | Employee salary reduction, employer may add | Employee salary reduction, employer may add | You, your employer, or anyone else |
| What it pays for | Dental, vision, preventive care, and general expenses only after the deductible if the plan allows | Any section 213(d) medical expense | Any section 213(d) medical expense |
| Unused money at year end | Forfeited beyond a $680 carryover or a grace period | Same | Rolls over indefinitely |
| Goes with you when you leave the job | No | No | Yes |
| Available without an employer | No | No | Yes, with a qualifying plan |
For the full set of annual figures, including out-of-pocket maximums and the partial-year rules, see HSA contribution limits and HSA rollover rules.
The Bottom Line
A limited purpose FSA does one job well: it moves dental and vision spending into pre-tax dollars without costing you a month of HSA eligibility. For 2026 that is up to $3,400, with $680 of carryover if your plan offers it, sitting on top of a $4,400 or $8,750 HSA contribution.
Check two things before you elect: whether your plan offers a carryover or a grace period, and whether it has a post-deductible feature that opens the account once you hit $1,700 or $3,400 of deductible. Then elect what you expect to spend rather than the maximum. If you are paying cash for the work itself, price it with the fair price checker and see whether a dental savings plan beats the sticker. If any of this touches an actual filing decision, run it past a tax professional.