Medical Savings Account

A Medical Savings Account (MSA) is a trust or custodial account, offered by insurance companies, banks, and organizations approved by the Internal Revenue Service (IRS) to administer IRAs. It is combined with a low-premium/ high-deductible insurance policy, designed for individuals or families in order to fund health care expenses and medical insurance. Participants are encouraged to invest the premium savings in a medical savings account by making tax-deductible contributions to the MSA. Medical expenses are paid out of the account until the deductible is reached. Unused monies in the account may be rolled over tax-free and may be invested to pay for future medical expenses and more general uses after retirement.

Medical Savings Accounts are the most beneficial and least expensive method for small businesses or self-employed individuals to purchase health care benefits. Established by Congress in 1996 MSA's are tax exempt trust funds created for the purpose of saving money and paying for qualified medical expenses in connection with a high deductible health plan. Medical Savings Accounts are often described as Medical IRA's because of their special tax advantages and easy accessibility when it is necessary to pay medical bills. Money saved in a MSA is non-taxable, grows tax-deferred and can be used to pay medical bills tax free. At age 65 they are converted to traditional IRA's. You need to understand the concept of the Medical Savings Account to fully utilize it’s potential. Basically one takes a higher deductible and sets aside additional money in the tax advantaged trust fund to pay for minor medical bills and also deductibles and co-pays or co-insurance. With the tax savings generated by two tax advantages your true cost of medical insurance is greatly reduced, sometimes even to zero. The high deductible insurance plan still exists to pay for catastrophic bills which could cause you financial harm. Keep in mind that the MSA trust must be funded to receive the second tax break. The higher the deductible, the more saved. Contribution to the Medical Savings Account trust fund, which is 75% of the MSA deductible is also tax deductible. (families 75%, individuals 65%). Subtract the total of the two tax savings from the cost of the MSA health insurance yearly premium to calculate the true cost of the MSA health insurance. It can be surprising how much can be saved.

MSA Advantages:

1. Lower Premiums
2. Broader coverage with tax savings on medical expenses
3. Deductible and co-pay exposure funded by tax deferred savings
4. Fully funded by second year.
5. Retirement savings potential