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Archer Medical Savings Accounts and Health Savings Accounts

Archer Medical Savings Accounts (also called Medical Savings Accounts or MSAs for short) are similar to IRAs. Like IRAs, special rules govern when your money can be withdrawn, for what purpose the funds can be used and the deductibility of contributions.

If you have an MSA, a decision should be made whether to continue to operate as an MSA. Is the MSA adequate for your needs or should it be rolled over into a new health savings account (HSA)? Administrative costs for setting up an HSA are generally a good reason not to convert to an HSA. A greater degree of flexibility in certain business settings may be another good reason.

Like an MSA, an HSA is a tax-exempt trust or custodial account to which tax-deductible contributions may be made by individuals with a high deductible health plan. HSAs provide tax benefits similar to, but more favorable than, those provided by MSAs. What's more, unlike HSAs, only individuals who are self-employed or employed by a small business may participate in an MSA.

For calendar year 2017, the annual limitation on contributions for an individual with self-only coverage under a high deductible health plan (HDHP) is $3,400. The annual limitation on contributions for an individual with family coverage under a HDHP is $6,750. A HDHP for calendar year 2017 is a health plan with an annual deductible that is not less than $1,300 for self-only coverage or $2,600 for family coverage, and the annual out-of-pocket expenses (deductibles, co-payments, and other amounts, but not premiums) do not exceed $6,550 for self-only coverage or $13,100 for family coverage.

Qualified distributions from both MSAs and HSAs are tax free, even though contributions to either account are deductible when deposited. You may withdraw money to pay for your medical expenses and the medical expenses of your spouse and dependents. Generally, most medical expenses can be paid by these withdrawals. Withdrawals for most non-medical purposes, however, are subject to federal tax and a penalty. The penalty for nonqualified withdrawals from an MSA is 20 percent.

Please contact us if you have any additional questions about Archer MSAs or HSAs.

IRS Circular 230 Disclosure

Pursuant to U.S. Treasury Department Regulations, information contained in this article is not intended by TOPC Potentia P.C. to constitute a covered opinion pursuant to regulation section 10.35 or to be used for the purpose of (i) avoiding tax-related penalties under Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any tax-related matters addressed herein.

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