This is the fourth post in our “My Life in Benefits” series. New posts are published the first Thursday of every month in five year increments. Read the first post here.
In case this is the first post you’ve read, I’ll give you a quick overview to catch you up. I am a guru of pre-tax benefits. My goal is to simplify pre-tax benefits so you can understand them and save more money.
I’ve written about how I saved my family money with a Commuter Benefit Plan, a Health Savings Account (HSA), and a Dependent Care FSA. As a father of three (5 year old twin boys and a 2 year old girl), I need to save as much money as I can.
In this post, I’m going to address how we used our Limited FSA to save on vision expenses.
What’s a Limited FSA?
I should start off by explaining what a Limited FSA is. It shares some elements with a Medical FSA and is one of the few accounts that can be combined with a Health Savings Account.
Like a Medical FSA, a Limited FSA requires you to set an election amount for the year and you have to use up the funds within a certain window of time. You can read more about that here.
A Limited FSA can only be used for dental and vision expenses, unlike a Medical FSA, which can be used to pay for dental expenses, vision expenses and health expenses. You’re not allowed to have a Medical FSA at the same time as an HSA because they can be used toward the same eligible expenses. The IRS regards this as double-dipping and has made it illegal.
You can have a Limited FSA and an HSA at the same time because, as its name implies, a Limited FSA is limited in the eligible expenses it covers. No double dipping, no issue.
There when you need it
We were planning to use our FSA to cover annual visits to the dentist’s office and optician’s office. But life doesn’t always go as planned. In February, our son started complaining about his eyes. He said movies that he watched were blurry and he couldn’t see the notes when he played piano.
We were a little worried, so we scheduled a visit to the eye doctor. At the end, they handed us a prescription for glasses. Our son was excited to pick out his own pair of glasses. I think he tried on at least 10 different pairs.
He now looks very cute (and very smart) in his new glasses.
Paying with a Limited FSA
The unexpected visit to the optician’s office and the glasses were all paid for from our Limited FSA. We paid with a benefits card that we had received after enrolling in the account.
A few remarks on the card… Both my wife and I have the same card. It is tied to the same accounts. In our case, it’s tied to our health accounts (the Limited FSA and the HSA) and our commuter accounts (for Mass Transit and Parking).
How it works: The card pulls from our Limited FSA first for any vision or dental expenses. When we pay for health expenses, the card automatically pulls from our HSA. This is because the card is set up to automatically pull from the account that you need to spend down (or risk losing). We are expecting that we will use up all the money in our Limited FSA by the end of the year. If or when this happens, the card pulls from the HSA for any vision, dental, or health expense.
A few closing remarks on the Limited FSA…
When it comes to using an Limited FSA, remember:
- You have to be signed up for an HSA with a qualified High Deductible Health Plan first. You cannot enroll in a Limited FSA independent of an HSA.
- Once you enroll in the account, you have to set a single election amount for the year. Your employer determines how long you have to spend the money in your Limited FSA. In some cases, depending on how your employer has the account set up, up to $500 of your Limited FSA might roll over into the next benefits year.
One more reminder: Your employer only controls the funds in the Limited FSA. The funds in the HSA belong to you. You can spend as much or as little of the money in your HSA as you’d like. And the funds never expire. You can keep them until you retire.
That’s all I have to say about a Limited FSA! If you want to keep following my journey and learn more about your own pre-tax benefits, sign up for the newsletter.