MSA stands for Medical Savings Account. Medical saving Account is a type of savings account in which tax-deferred deposits can be made and used only for medical expenses.
Medical expenses covered under MSAs can be general health care, dental care, eye-care, long-term medical care etc.
It is usually associated with self-employed individuals. Employers prefer Health Savings Accounts instead of Medical Savings Accounts.
It is a way for self-employed persons to save money to pay for medical costs.
Withdrawals from Medical Saving Accounts are tax-free if and only if they are used to pay qualified medical expenses.
There are two types of MSA; Archer MSAs and Medicare Advantage MSAs.
Eligibility criteria for MSA are as below:
Source: www.irs.gov
MSAs also have a contribution limit without facing a penalty.
MSA Contributor or his employer can contribute up to 75% of the annual deductible of his HDHP to the Archer MSA. This limit is 65% if he/she has a self-only plan.
Note: The MSA contributor must keep in mind that he must have the HDHP all year to contribute the full amount.
If he or she doesn’t qualify for the full amount, the amount deducted will be proportionate to the period.
When a taxpayer is not covered for a whole year, he/she can use Form 8853 to calculate contribution limit.
In case of an employer providing MSA, contributions to MSAs cannot be more than the income from the employer.
You can download excel templates like Traditional IRA Calculator, Roth IRA Calculator, and Income Statement Projection for easy calculations.
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