Medical Savings Account (MSA): Best Retirement Options

medical savings account

When healthcare costs increase and you near retirement, it’s important to understand your choices for controlling your expenses. MSAs (Medical savings accounts) can help to reduce premiums while also offering healthcare coverage at Retirement. Hence, these policies are best for people who are reasonably stable who want to have more say over how they receive treatment. We’ll be discussing the types of medical savings account like the Medicare MSA and Archer MSA.

What Is an MSA (Medical Savings Account)?

The word “medical savings plan” can refer to any of many tax-advantaged plans that have been in place since the early 1990s. It also refers to a form of medical savings account (MSA) that was approved and governed under the Internal Revenue Code in the early 1990s. Health savings account evolved from this form of account (HSA).

Furthermore, Medicare MSAs are eligible for some Medicare Advantage plans. The administrators of Medicare, the Centers for Medicare and Medicaid Services, are in charge of these accounts.

Understanding Medical Savings Accounts (MSAs)

Several states pioneered the use of medical savings accounts (MSAs) in the early 1990s. So, these policies had become a federal pilot program under the Health Insurance Portability and Accountability Act by 1996. (HIPAA). Patient savings accounts benefited from tax breaks under the Internal Revenue Code and served as templates for future medical savings plans.

Medical Savings Accounts: A Brief History (MSAs)

Medical savings plans are aimed at helping Americans cover the high cost of healthcare services. The first MSAs contributions were by either the individual or the employer, but not both. MSAs were restricted to the self-employed or employer groups of 50 or fewer workers, and they were also subject to eligibility, contribution, and use of funds requirements. So, the requirements for participants were to have a high-deductible health insurance plan (HDHP). Individuals or their employer’s contributions were not tax-free. If you use it for eligible medical costs, MSA distributions are tax-free.

These arrangements were replaced by HSAs, which are still available. HSAs followed a structure and set of rules similar to MSAs, including the requirement that each account is linked to an HDHP.

Types of Medical Savings Account (MSAs)

We majorly have two medical savings account. So, they include;

#1. Medical Savings Accounts under Medicare (MSAs)

You can use a Medicare MSA in conjunction with a high-deductible Medicare Advantage (MA) plan (Medicare Part C). The Medicare MSA plan deposits money into the insured’s MSA, enabling him or her to use the funds to pay for medical treatment long before the deductible is met. The Medicare MSA, like an HSA, allows users to choose their healthcare providers and facilities. However, while Medicare MSA funds can be used for programs not covered by Medicare, only the cost of Medicare services counts against meeting the deductible.

Some Medicare MSAs, for a fee, provide additional services not provided by the MA Plan, such as dental treatment, eye care, hearing aids, and long-term care. However, Medicare MSAs do not cover prescription medications. Enrollment in Medicare Part D is eligible for Medicare prescription drug coverage.

People who have a Medicare MSA will use the funds in the account to pay for medical costs long before they hit their insurance plan’s high deductible.

#2. Archer Medical Savings Accounts

Before 2008, self-employed individuals and small companies with less than 50 workers who have HDHPs could set up Archer MSAs, which were set up as tax-exempt trusts or custodial accounts with US financial institutions. Archer MSAs functioned in the same way that the initial MSAs did. The law allowing Archer MSAs expired on December 31, 2007.

Contributions to Archer MSAs by individuals are tax-deductible. Contributions to Archer MSA accounts that have been grandfathered in are currently tax-deductible (whether or not the contributor itemized deductions). So, employees don’t pay taxes on employer donations. They allow only monetary donations. Interest, dividends, and other gains and distributions used to pay for eligible medical expenses are tax-free. Thus, unused balances will be carried forward to the next year at the close of the fiscal year. If insured individuals change jobs, the Archer MSA will follow them to their new employer, and they will be able to make additional deposits as long as they remain eligible.

Read also: Health Savings Account (HSA): Contributions and Eligibility Requirements 2021

What exactly is a Medicare MSA Plan?

Medicare collaborates with private insurance providers to provide you with options for health care coverage. These businesses can opt to sell a Medicare MSA Plan, which is a consumer-directed Medicare Advantage Plan. These programs are comparable to Health Savings Account Plans that are available outside of Medicare. You have the option of selecting your own healthcare facilities and providers.

Medicare MSA Plans are divided into two sections.

Medicare MSA Plans to incorporate a high-deductible insurance plan with a medical savings account. You can use it to pay for healthcare expenses.

  • The first component is a special form of high-deductible Medicare Advantage Plan (Part C). So, the plan can only start covering the expenses after you have met a high yearly deductible, which varies by plan.
  • A second component is a form of savings account, the medical savings account (MSA). The Medicare MSA Plan pays money into your account. You will use the funds in this savings account to pay for healthcare expenses before you reach the deductible.

What are MSA Plans and how do they work?

Learn the fundamentals of using a Medicare MSA Plan.

Medicare MSA plans include the Medicare programs that Medicare Advantage Plans need to cover. Furthermore, some Medicare MSA plans can cover additional benefits for an additional fee, such as:

Medicare does not cover long-term care. So, contact plans in your region for more detail about what additional benefits, if any, they have. Medicare MSA Plans do not cover prescription medications under Medicare Part D.

If you enroll in a Medicare MSA Plan and need drug coverage, you must also enroll in a Medicare Prescription Drug Plan. You may use the following search terms to find available plans in your area:

Visit the Medicare Plan Finder to learn more. Please contact them at 1-800-MEDICARE (1-800-633-4227). 1-877-486-2048 (TTY). Also, examine the back of your “Medicare & You” booklet.

Although there is no premium for MSA plans, you must continue to pay your Part B premium. If you use these services, you may have to pay a fee.

Special Considerations

The Medicare Prescription Drug Improvement and Modernization Act of 2003 authorized the establishment of health savings accounts (HSAs) to assist individuals enrolled in high-deductible health plans in paying their medical expenses. These accounts eventually became a permanent part of the tax code.

Contributions to health savings accounts (HSAs) reduce federal taxable income. HSAs are available to any eligible individual with an HDHP. If an employer contributes to an HSA, or if an employee contributes through payroll deductions, they deduct the amounts from the employee’s taxable income. Direct contributions by self-employed and unemployed individuals are tax-deductible, whether the individual claims the standard deduction or itemizes. You can add funds at any point between the start of the fiscal year and the end of the tax filing season for that year. Tax-free distributions are for eligible medical expenses.

Medical Savings Account for Retirement (RMSA)

A Retirement Medical Savings Account is a tax-advantaged retiree healthcare savings plan in which employers save money now to help pay for retirement healthcare expenses. The funds come from after-tax employee contributions that you can invest in several ways. So, after workers retire, you can use the funds in their accounts tax-free for several eligible medical expenses, including:

  • Premiums for retiree health benefits
  • COBRA Premiums
  • Premiums for Medicare
  • Premiums for long-term care insurance
  • Deductibles and copayments
  • Prescription medications

Some out-of-pocket healthcare costs following retirement. The RMSA does not receive a donation from the University.

Please see the “RMSA Flyer” for guidance about how to view your Retirement Medical Savings Account balance after retirement.

Finally, upon the demise of an insured holder, their spouse can continue to benefit from it however, RMSA does not make provisions for beneficiaries. This means once both couple is dead, the fund will be forfeited.

What is the maximum amount that can be accumulated in an MSA?

The maximum amount that can be accumulated in an MSA varies depending on the specific MSA plan, but typically ranges from $50,000 to $150,000.

How can funds be withdrawn from an MSA?

Funds can be withdrawn from an MSA for qualified medical expenses. Any funds withdrawn for non-medical expenses are subject to taxes and a 10% penalty.

What happens to the funds in an MSA after the account holder retires or turns 65?

The funds in an MSA can continue to be used for qualified medical expenses, or they can be used for any purpose without penalties or taxes after the account holder retires or turns 65.

What are the fees associated with an MSA?

The fees associated with an MSA typically include setup fees, annual fees, and fees for investment management.

How does an MSA differ from a Health Savings Account (HSA)?

An MSA differs from a Health Savings Account (HSA) in that MSAs are only available to individuals covered by a high-deductible health plan (HDHP) and not enrolled in Medicare, while HSAs are available to individuals covered by an HDHP regardless of age.


Medical savings accounts, which were developed by several states in the early 1990s and later by a federal pilot program, were largely phased out in 2003 and were replaced by HSAs and health savings accounts.
Existing Archer MSAs were grandfathered in, but new ones were not permitted. Employee HSAs may be set up to accept donations from either the employee or the employer. Members of approved high-deductible Medicare Advantage plans will open medical savings accounts governed by Medicare.

Some employers also assist workers in paying for medical costs by providing tax-advantaged flexible spending accounts (FSAs) or insurance reimbursement plans (HRAs).

An HSA is a completely vested account. This means that funds are not forfeited if they remain unspent at the end of the year. The IRS publishes the HSA contribution limits as well as the required, inflation-adjusted HDHP amounts for the minimum health plan premium and the out-of-pocket cost ceiling for both self-only and family coverage per year. Individuals aged 55 and over are eligible for an extra donation sum per year. Individuals on Medicare cannot contribute to HSAs, but they can use any remaining balance in an HSA to pay for eligible medical expenses.

Medical Savings Account FAQs

Are medical savings accounts still available?

Types of Medical Savings Accounts (MSAs)

As of 2021, a Medicare MSA is available with a high-deductible Medicare Advantage (MA) plan (Medicare Part C). The MA plan deposits funds to the insured’s MSA, allowing the insured to use the funds to pay for medical care even before the deductible is reached.

How do I get a medical savings account?

How to find an HSA financial institution

  1. Research HSA providers online. Use HSA comparison websites, like HSA Search, to help narrow your search.
  2. Check with your health insurance company to see if they partner with HSA financial institutions.
  3. Ask your bank if they offer an HSA option that meets your needs.

Can you open an HSA without health insurance?

Yes, you can open a health savings account (HSA) even if your employer doesn’t offer one. … And you can’t be covered by other disqualifying coverage as defined by tax laws, such as Medicare, Medicaid, TRICARE, or a spouse’s health plan that is not HSA-qualified.

What is an alternative to an HSA?

A Health Reimbursement Arrangement (HRA), Flexible Spending Account (FSA) or Medical Expense Reimbursement Plan (MERP) are attractive options when an employer wants to cover out-of-pocket health expenses for employee

  1. Health Savings Account (HSA): Contributions and Eligibility Requirements 2021
  2. Best HSA Accounts 2021: Comparison of Fees & Investment Options
  3. HSA Investment: Best Options and Tax Benefits
  4. Lively HSA Review: Investment Options and Fees
  5. Health Savings Account Rules (HSA Rules) 2021 (Updated!)
  6. Medical Expenses in Retirement: How to Plan
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