HSA and Dependent Care FSA: 2027 Open Enrollment Limits and Trade-Offs

Short answer: An HSA may pair a tax deduction with funds for current or future medical costs, but only if your health plan qualifies. A dependent care FSA may cover childcare costs with pre-tax dollars, up to $7,500 per household. Both come with trade-offs, such as higher deductibles, use-it-or-lose-it rules, and elections that are hard to change mid-year.

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This article is general education, not tax, legal, or investment advice. Rules change and individual circumstances matter. Tax rule descriptions and dollar figures are as of October 26, 2026 and cite IRS material.

1. What is different going into 2027 open enrollment?

Open enrollment is when many employees set HSA payroll contributions, choose between a high-deductible plan and a traditional plan, and decide how much to elect for a dependent care FSA. Several figures and rules have changed since this article was first published in April 2026.

HSA figure	2026	2027
Contribution limit, self-only HDHP coverage	$4,400	$4,500
Contribution limit, family HDHP coverage	$8,750	$9,000
Additional contribution, age 55 and older	$1,000	$1,000
Minimum HDHP deductible, self-only / family	$1,700 / $3,400	$1,750 / $3,500
HDHP out-of-pocket maximum, self-only / family	$8,500 / $17,000	$8,700 / $17,400

The HSA limit is a combined total, so employer contributions count toward it. Source: IRS Revenue Procedure 2026-24 and Publication 969.

• More plans may qualify. Since January 1, 2026, bronze and catastrophic plans are treated as HSA-compatible, and certain direct primary care arrangements no longer disqualify an otherwise eligible person (IRS Notice 2026-5).
• Telehealth relief is permanent. Telehealth and other remote care may be covered before the deductible is met without affecting HSA eligibility.
• The dependent care FSA limit rose to $7,500 in 2026. It was $5,000 before, and the new amount is not indexed for inflation. The limit is $3,750 for married people filing separately (IRS Publication 15-B).
• The 2027 health FSA limit had not been published as of October 26, 2026. The 2026 limit is $3,400, with a maximum carryover of $680 for plans that allow one. Check your plan documents for the 2027 figure once your employer publishes it.

Your employer's plan may set lower limits than the IRS maximums, so confirm the amounts in your benefits portal.

2. Who can contribute to an HSA?

An HSA is an account you can use to pay for qualified medical expenses. Contributions are generally allowed only when you meet several conditions on the first day of the month:

• You are covered by an HSA-qualifying health plan, which is generally a high-deductible health plan (HDHP), or one of the bronze or catastrophic plans described above.
• You have no other disqualifying health coverage, such as a general-purpose health FSA.
• You are not enrolled in Medicare.
• You cannot be claimed as a dependent on someone else's tax return.

A limited-purpose health FSA, which is restricted to expenses such as dental and vision, may generally be paired with an HSA. A dependent care FSA may be paired with one as well. The account may stay open and remain usable for qualified expenses after you leave an HDHP, but you generally cannot keep contributing.

The "last-month rule" lets someone who is eligible on December 1 contribute the full-year amount, but it carries a testing period. If you stop being eligible during that period, part of the contribution can become taxable and may be subject to an additional tax. If you are 55 or older and married, each spouse generally needs their own HSA to make an additional contribution.

3. Does a high-deductible plan fit your household?

The health plan decision may matter more than access to an HSA. A plan that lowers your premium and unlocks an HSA could still cost more overall if it does not match how your household uses care. Questions that may indicate a high-deductible plan is a poor fit:

• Cash flow. Costs can be front-loaded early in the plan year, while payroll contributions build gradually. Do you have cash available to cover a large bill before the account builds up?
• Frequency of care. If your household expects regular visits, ongoing prescriptions, or a planned procedure, out-of-pocket costs may exceed the tax benefit. The out-of-pocket maximum for the plan year is the figure to compare.
• Effect on decisions. Because unspent HSA money stays yours, some people feel pressure to delay care to preserve the balance. Care that is delayed for financial reasons can carry its own costs.
• Premium and employer contribution differences. Compare total annual cost under each plan, including premiums, employer HSA contributions, deductibles, and the out-of-pocket maximum, rather than any single number.

4. How can an HSA be used over a longer horizon?

Qualified HSA distributions are not taxed, and the account may be invested, so some people treat an HSA as a long-term account rather than a spending account. The IRS says you can take tax-free distributions to pay or reimburse qualified medical expenses you incur after you establish the HSA, and that you do not have to take distributions each year.

Some savers pay current medical bills from cash, keep records, and allow the HSA balance to remain invested. This approach is a choice, not a requirement, and it has costs and risks:

• Investments can lose value, and cash held in an HSA may earn little. Review how your HSA custodian handles investing, since balances may sit in cash until you choose otherwise.
• Paying bills out of pocket reduces the cash you have available for other goals, such as a cash buffer.
• You are responsible for keeping records that show a withdrawal was for a qualified expense. A lost receipt may mean a taxable withdrawal.
• Withdrawals not used for qualified medical expenses are taxable and, before age 65, may be subject to an additional 20% tax.
• Some states do not follow the federal tax treatment of HSAs. Ask a tax professional about your state.

In retirement, a qualified HSA withdrawal is not taxable income, so it may give flexibility in years when required minimum distributions or Social Security benefits already raise taxable income. Required minimum distributions from traditional retirement accounts generally begin at age 73 (a later start age applies to some younger savers). How an HSA fits alongside those accounts depends on your tax situation, which is one of the questions we cover in tax planning for high-income earners.

5. How does a dependent care FSA work?

A dependent care FSA lets you set aside pre-tax salary for work-related care of a qualifying person, which is generally a child under 13 or a spouse or dependent unable to care for themselves. The IRS exclusion is up to $7,500 per household ($3,750 if married filing separately), and it cannot exceed the smaller of your earned income or your spouse's. For 2027, the limit remains $7,500 because it is not indexed.

Points that matter at open enrollment:

• The amount is per household, not per child. Both spouses' elections count toward the same limit.
• Elections are generally fixed for the plan year. Changes are typically allowed only after a qualifying life event, such as a birth or a change in care costs, under your plan's rules.
• Funds may be forfeited. A dependent care FSA is generally use-it-or-lose-it. Unlike a health FSA, there is no standard carryover, although some plans allow a grace period after the plan year ends. Check your plan document.
• Reimbursement follows spending. Unlike a health FSA, you can usually be reimbursed only up to what you have contributed so far.
• It interacts with the child and dependent care tax credit. Benefits you exclude from income reduce the expense limit for the credit. IRS Publication 503 and Form 2441 describe the calculation, and which route saves more depends on income and filing status.
• Eligible providers have conditions. Payments to your spouse, or to the parent of a qualifying child under 13, do not count.

Whether the full $7,500 makes sense depends on what you expect to pay for qualifying care. Electing more than you spend risks forfeiting the unused balance, so many households start from their documented expected costs.

6. What about a health FSA?

A health FSA is a separate employer account for medical costs. A general-purpose health FSA generally prevents HSA contributions in the same year, so households choosing an HDHP typically pick either an HSA or, if they want an FSA, a limited-purpose health FSA. The 2026 health FSA limit is $3,400 per employee. For plan years that allow it, unused amounts may carry over up to $680. A plan may offer a carryover or a grace period, but not both. As noted above, the 2027 limit had not been published as of October 26, 2026.

7. Pros and cons

HSA

Potential benefits: contributions may be deductible or excluded from income, qualified withdrawals are not taxed, the balance stays with you, and the account may be invested for the long term.

Trade-offs: it requires a qualifying health plan that may carry higher out-of-pocket costs, contribution eligibility ends with Medicare enrollment, non-qualified withdrawals are taxed and may be penalized, record-keeping falls on you, and investments carry risk.

Dependent care FSA

Potential benefits: pre-tax payroll dollars may offset childcare costs that you are already paying, and it may be used alongside an HSA.

Trade-offs: elections are hard to change mid-year, unused funds may be forfeited, the limit is shared across the household, it reduces the amount available for the dependent care credit, and the benefit depends on your tax situation.

8. What to bring to a planning conversation

• Your employer's open enrollment materials, including each health plan's premium, deductible, and out-of-pocket maximum
• Your current HSA and FSA balances and any employer contribution amounts
• Your expected medical, prescription, dental, and vision costs for 2027
• Your childcare costs, provider details, and each spouse's earned income
• Whether anyone in the household is near or past Medicare eligibility
• Your recent tax return, so we can discuss how pre-tax elections interact with your bracket and the child and dependent care credit
• Your current cash reserves and other goals competing for the same dollars

For how these accounts fit alongside cash reserves, retirement accounts, and equity compensation, see our financial order of operations guide.

How this fits into planning at LKL Advisors

Open enrollment choices are one part of a broader plan that also covers tax strategy, retirement accounts, and cash reserves. You can see the full list of services, review our published fee structure, which has no account minimums, or contact us with a question. We work alongside your tax professional rather than replace them.

LKL Advisors is based in Atlanta, Georgia, and works with clients across the country, wherever we are registered or otherwise permitted to serve them. Planning is done remotely through secure virtual platforms.

Sources

• IRS, Revenue Procedure 2026-24, 2027 inflation adjusted amounts for Health Savings Accounts, accessed October 26, 2026
• IRS, Notice 2026-5, Expanded Availability of Health Savings Accounts under the One, Big, Beautiful Bill Act, accessed October 26, 2026
• IRS, Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans, accessed October 26, 2026
• IRS, Publication 15-B (2026), Employer's Tax Guide to Fringe Benefits, accessed October 26, 2026
• IRS, Publication 503, Child and Dependent Care Expenses, accessed October 26, 2026
• IRS, IR-2025-103, tax inflation adjustments for tax year 2026 (health FSA limit and carryover), accessed October 26, 2026
• IRS, Retirement plan and IRA required minimum distributions FAQs, accessed October 26, 2026