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Medical Savings Accounts 101 (MSAs)


Medical savings accounts (MSAs) are savings accounts used to pay for unreimbursed health care expenses.

There are two types of MSA accounts - .

  • Archer Medical Savings account.  These accounts can no longer be opened. 
    • Archer MSAs were basically for employees of small businesses or people who were self employed and had a high deductible health insurance plan (HDHPs). 
    • Either the employee or the employer (never both) make contributions. 
    • Maximum contribution from the employee for single coverage is 65% of the deductible on the employee's health plan, and 75% of the deductible for family coverage. 
    • Employees may take funds with them when they leave, including going on disability, or change jobs.
    • MSAs created before December 31, 2008 can continue to exist. For everyone else, MSAs have been replaced by Health Savings Accounts (HSAs).
  • MSA plans that work with Medicare Advantage known as Medicare Medical Savings Accounts.

The following information applies to both types of MSA accounts:

  • Money is controlled and owned by the account holder. 
  • Contributions are generally exempt from taxes. So are withdrawals if used to cover your qualified medical expenses, or medical expenses of your spouse or dependents. If you withdraw funds for any other reason, withdrawal is taxable. In addition, there is a penalty of 15% of the amount of the withdrawal, unless made:
    • After age 65.
    • In the event of disability.
    • In the event of death.
  • There is no tax on earnings unless funds are withdrawn for nonmedical expenses. If withdrawn for nonmedical purposes, savings are considered to be taxable income and are subject to income taxes in addition to a 15% penalty tax. If you become disabled or reach Medicare eligibility age, distributions for nonmedical expenses from the account are subject only to ordinary income tax, not the penalty.
  • Funds can be used on a pretax basis to pay for qualified medical expenses which include:
  • Savings are rolled over each year and are portable, regardless of employment status.
  • All contributions, distributions, and return of excess contributions are reported to the IRS.

Medicare Medical Savings Accounts: The federal government has an easy-to-understand booklet about these accounts which you can see by clicking here offsite link. For an overview of Medicare Advantage, click here.  

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