Medical savings accounts
A medical savings account (MSA) is a tax-advantaged trust or custodial account set up for medical expenses, recognized under Internal Revenue Code Section 220. The IRS limits MSAs to self-employed individuals and employees of small businesses with fewer than 50 employees in the United States.
Federal law requires MSAs to pair with high-deductible health plans (HDHPs); in 2023, qualifying HDHPs mandate minimum deductibles of $2,650 for individuals and $5,300 for families. Deposits into MSAs exclude employer contributions from gross income; employees can also make pre-tax contributions.
Account holders may use funds only for qualified medical expenses such as deductibles, copayments, prescription drugs, and specific services listed in IRS Publication 502. Unused MSA balances roll over each year; funds earn interest or investment returns tax-free if spent on eligible healthcare costs, as per YourInsurance.info.
MSAs differ from flexible spending accounts (FSAs), which are subject to “use-it-or-lose-it” rules and stricter annual contribution limits. Withdrawals for non-medical purposes before age 65 incur ordinary income taxes plus a 20% penalty except in cases of disability or death.
In 2023, the maximum annual contribution equals 65% of the HDHP deductible for self-only coverage ($1,722.50) or 75% for family coverage ($3,975). Only a limited number of banks and insurers–including Optum Bank and Aetna–administer new Archer MSAs due to their phase-out after introduction of Health Savings Accounts (HSAs) in 2003.
HSAs have largely supplanted MSAs but some legacy policies remain active; as of 2022, fewer than 4,000 active Archer MSA accounts existed nationwide according to Treasury Department data.
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See also Medical screening.