Why would I enroll in a Limited Purpose FSA, on top of an HSA?

Question

Open enrollment is coming up and I have the option to open both an HSA and a limited purpose FSA, which only covers dental and vision expenses. Why would I participate in both?

Answer 1

Even though your HSA may already cover vision and dental expenses, there are two reasons you still might want to consider a Limited Purpose FSA on top of an HSA:

1. If you anticipate enough other expenses to completely use up funds in your HSA (and remember, annual contributions to an HSA are limited), then you can use the FSA funds for the vision & dental expenses specifically, or

2. If you want your HSA balance to accumulate for future major health expenses. HSA balances can carry over from one year to the next.

Be careful: Unlike an HSA's ability to carry over, FSAs are instead use-it-or-lose-it ... excess funds are forfeit at the end of the year. So, don't overfund beyond anticipated expenses, or you'll generously end up subsidizing other members in your company's medical plan. :-)

Answer 2

I maintain an HSA and a childcare FSA. Previously I maintained an FSA for planned medical procedures (for example I knew my spouse wanted LASIK surgery)

In my scenario I am maximizing contributions to all tax-advantaged vehicles.

So I fund my HSA to the maximum and my FSA to the maximum because I intend to keep my HSA as an investment account. I also anticipate spending every dime (and more) of my $5000 child-care FSA. Since I hand out roughly 30% of my income in taxes, being able to offload 5K to the FSA saves me ~$1500 annually.

Think of your FSA as an additional tax-advantaged vehicle for expenses you expect to incur during the calendar year. My HSA is, as far as I'm concerned, another name for a slightly funny retirement account.