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Montana Medical Care Savings Accounts
MontGuide199817 HR
Revised January 20151
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What is an MSA?• An account that can be used for paying eligible medical expenses that are not covered by: Health insurance policy Flexible spending plan
(FSA)
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Where to establish MSA accounts?
• Bank• Savings Bank• Credit Union
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Where to establish MSA accounts?
• Trust company• Mutual fund company• Brokerage firm
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Caution• Minimum Balance?
May range from $20 to $1,000
• Fees? • For monthly withdrawals that exceed a certain amount
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MSA Rules
• Must be separate from other accounts
• Joint accounts for MSAs not allowed
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Who is Eligible?
•Montana resident tax payers only
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Minor Child
•Cannot establish MSA for: –Minor child under age 18
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Parents’ MSAs
•May be used for minor child’s eligible medical expenses
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MSA Deduction
• $3,000 for each taxpayer
• $6,000 married couple
Separate Accounts Can use funds for one another
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MSA Saves on Montana Income Taxes
• Contributions:–Reduce Montana income
by amount deposited–Taxes saved depend on tax
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Montana Taxable Income
Adjusted income $ 49,000 MSA deposit - $ 3,000 Taxable Income $46,000
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Tax Brackets & Rates Montana- 2014
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At Least But less Than Then your tax is:
$0 $2,800 1%
$2,800 $5,000 2%
$5,000 $7,600 3%
$7,600 $10,300 4%
$10,300 $13,300 5%
$13,300 $17,100 6%
$17,100 or more 6.9%
www.revenue.mt.gov
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MT Tax Savings with MSA vs Regular Savings AccountDeposit: $3,000
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• Taxable Income more than $17,100 (6.9% tax bracket)
Savings MSASavings Deposit $3,000
Interest Rate: x .0005Earnings $ 1.50
Savings Deposit $3,000 Tax Bracket: x .069
Tax Savings: $207
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Example: Barbara
• January 31–$3,000 deposited in MSA
• Had $2,000 eligible medical expenses during year
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Barbara’s Montana Income
• Reduced by $3,000 Not $2,000 withdrawn
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Adjusted income $ 42,000MSA deposit - $3,000Taxable Income $ 39,000
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Reduced Income for Tax Purposes
• Total deposited in MSANot amount withdrawn for
medical expenses 17
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Interest earnings
• Not subject to Montana income taxation if:–Left in the account–Withdrawn for eligible medical care
expenses
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What are eligible medical expenses?
• Montana accepts any health care expense allowed as a deduction on federal income tax return as “eligible”
• IRS Publication 50219
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Eligible MSA Expenses
• Health insurance premiums
• Long-term care insurance or annuity
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Eligible MSA Expenses
•Prescribed drugs• Insulin•Dental care
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Eligible MSA Expenses
• Eyeglasses• Crutches • Hearing Aids• Nursing Home Care
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Medicare Part A
•Not an eligible medical expense Covered by Social Security
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Medicare Parts B & D
•Eligible medical expenses
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Not Eligible
• Any medical expenses that are or have been reimbursed by some other type of insurance:– Health policy– Automobile policy– Workers Compensation
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Double dipping not allowed
Can’t claim twice for same expense:
If claimed for FSA or HSA can’t claim for MSA
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Who are Eligible Dependents?
• Spouse• Child
– Age 19 & under – Age 23 & under
• (if in college)27
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Who can administer my MSA?
• You can Self-administered account Almost all MSAs are self-
administered
• Someone you pay Registered Account
Administrator 28
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What if I need money for non-eligible expenses?
• Considered non-eligible withdrawal: –Subject to 10% penalty–Withdrawal counted as income in
Montana• Unless withdrawn on last business day of
the year 29
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Example: Duane
• Withdraws $6,000 to buy car in July 2014
Adjusted Income $ 40,000 MSA Withdrawal + 6,000 Taxable Income $ 46,000
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Example: Duanenon-eligible withdrawal
Increased Taxes ($6,000 x 6.9%) $ 41410% Penalty + 600 Total Cost of Withdrawal: $1,014
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No 10% Penalty
1. If non-eligible withdrawal made on last business weekday of December• Amount included as income,
however
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No 10% Penalty
2. Withdrawal due to death of account holder• Amount included in
decedent’s income in year died, unless POD spouse or lineal descendant
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3. Direct transfer to another MSA with different financial institution • Caution, wire transfer fees $25
to each institution
No 10% Penalty
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4. Direct transfer from one type of savings account to another within the financial institution: Example: MSA savings
account to MSA CD
No 10% Penalty
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• Withdrawals (not for eligible medical care expenses)
Reported MSA Form Rev. 04 14
Reporting 10% Penalty
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• Withdrawal for medical expenses paid in prior year –Must be made by
January 15
Dept of Revenue Rule
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What happens to my MSA when I die?
• Balance passes by: – POD Beneficiary Designation
– Written Will
– Montana Intestacy Statutes• Dying Without a Will
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Income tax savings to Beneficiaries
• POD to Spouse & Lineal Descendants Money can pass to their MSAs
without being subject to Montana income taxation
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What if I become incapacitated?
• Funds can be withdrawn by: –Person holding Power of
Attorney (agent)–Person named as Conservator by district
court
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What happens if I move to another state?
• Unused MSA Funds– Counted as Income on
final Montana Income Tax Return
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Planning Technique
• Track medical expenses January - December
• Deposit from savings to MSA the amount of eligible medical care expenses for the year
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Planning Technique
• Withdraw from MSA total amount needed for eligible medical care expenses during year – One withdrawal
• Deposit back to savings
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FormsDepartment of Revenuewww.revenue.mt.gov
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MSA Reporting Requirements
• File Form: Annual Reporting Form for Self
Administered Individual Accounts
Department of Revenuewww.revenue.mt.gov
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Enter Amount OnMontana Individual Income Tax Return
• Form 2 Schedule II: Line 18
• Form 2M Line 32
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Form-MSA
Simple to fill out: • Name• Social Security Number• Name & Address of
Financial Institution • MSA account number
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1. Current year deposits• No more than $3,000
2. Deposits from prior years not counted
3. Add lines 1 & 24. Add interest and other
income5. Add lines 4 & 5
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Form MSA: Summary
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Percent of Montanans with MSAs
• Only 1.4%• Why?
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Montana Medical Care Savings Accounts
MontGuide199817 HR
Revised January 201550