Montana Medical
Care Savings
Accounts
MontGuide
199817 HR
1
Revised September 2015
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)
2
Where to establish
MSA accounts?
• Bank
• Savings Bank
• Credit Union
3
Where to establish
MSA accounts?
• Trust company
• Mutual fund
company
• Brokerage firm
4
Caution
• Minimum Balance?
May range from $20 to
$1,000
• Fees?
• For monthly withdrawals that
exceed a certain amount
5
MSA Rules
• Must be separate
from other accounts
• Joint accounts for
MSAs not allowed
6
Who is Eligible?
•Montana
resident tax
payers only
7
Minor Child
•Cannot establish
MSA for:
Minor child under
age 18
8
Parents’ MSAs
•May be used for
minor child’s
eligible medical
expenses
9
MSA Deduction
• $3,000 for each
taxpayer
• $6,000 married
couple
 Separate Accounts
 Can use funds for one
another
10
MSA Saves on Montana
Income Taxes
• Contributions:
Reduce Montana
income by amount
deposited
Taxes saved depend
on tax bracket
11
Montana Taxable
Income
Adjusted income
$ 49,000
MSA deposit
- $ 3,000
Taxable Income
$46,000
12
Tax Brackets & Rates
Montana- 2015
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
www.revenue.mt.gov
6.9%
13
MT Tax Savings with MSA vs
Regular Savings Account
Deposit: $3,000
• Taxable Income more than
$17,100 (6.9% tax bracket)
Savings
Savings Deposit
Interest Rate:
Earnings
MSA
$3,000
x .0005
$ 1.50
Savings Deposit
Tax Bracket:
Tax Savings:
$3,000
x .069
$207
14
Example: Barbara
• January 31
$3,000 deposited in
MSA
 Had $2,000 eligible
medical expenses
during year
15
Barbara’s Montana
Income
•Reduced by $3,000
 Not $2,000 withdrawn
Adjusted income
MSA deposit
Taxable Income
$ 42,000
- $3,000
$ 39,000
16
Reduced Income for Tax
Purposes
•Total deposited
in MSA
Not amount
withdrawn for medical
expenses
17
Interest earnings
• Not subject to
Montana income
taxation if:
 Left in the account
 Withdrawn for eligible
medical care expenses
18
What are eligible
medical expenses?
• Montana accepts any
health care expense
allowed as a deduction
on federal income tax
return as “eligible”
• IRS Publication 502
19
Eligible MSA
Expenses
• Health insurance
premiums
• Long-term care
insurance or annuity
20
Eligible MSA Expenses
•Prescribed drugs
•Insulin
•Dental care
21
Eligible MSA Expenses
•Eyeglasses
•Crutches
•Hearing Aids
•Nursing Home Care
22
Medicare
Part A
•Not an eligible
medical expense
 Covered by
Social Security
23
Medicare
Parts B & D
•Eligible
medical
expenses
24
Not Eligible
• Any medical expenses that
are or have been reimbursed
by some other type of
insurance:
 Health policy
 Automobile policy
 Workers Compensation
25
Double dipping not
allowed
Can’t claim twice for
same expense:

If claimed for FSA or
HSA can’t claim for
MSA
26
Who are Eligible
Dependents?
• Spouse
• Child
 Age 19 & under
 Age 23 & under
(if in college)
27
Who can administer my
MSA?
• You can
 Self-administered account
 Almost all MSAs are selfadministered
• Someone you pay
 Registered Account
Administrator
28
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
Example: Duane
• Withdraws $6,000 to buy
car in July 2014
Adjusted Income
MSA Withdrawal
Taxable Income
$ 40,000
+ 6,000
$ 46,000
30
Example: Duane
non-eligible
withdrawal
Increased Taxes
($6,000 x 6.9%)
10% Penalty
$
414
+
600
Total Cost of Withdrawal: $1,014
31
No 10% Penalty
1. If non-eligible
withdrawal made on
last business weekday
of December
•
Amount included as
income, however
32
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
33
No 10% Penalty
3. Direct transfer to
another MSA with
different financial
institution
• Caution, wire transfer
fees $25 to each
institution
34
No 10% Penalty
4. Direct transfer from one
type of savings account
to another within the
financial institution:
 Example: MSA
savings account to
MSA CD
35
Reporting 10% Penalty
• Withdrawals (not for
eligible medical care
expenses)
 Reported
 MSA Form Rev. 04 14
36
Dept of Revenue Rule
• Withdrawal for
medical expenses
paid in prior year
Must be made by
January 15
37
What happens to my
MSA when I die?
• Balance passes by:
 POD Beneficiary Designation
 Written Will
 Montana Intestacy Statutes
Dying Without a Will
38
Income tax savings
to Beneficiaries
• POD to Spouse &
Lineal Descendants

Money can pass to their MSAs
without being subject to
Montana income taxation
39
What if I become
incapacitated?
• Funds can be withdrawn by:
 Person holding Power of
Attorney (agent)
 Person named as Conservator
by district court
40
What happens if I move
to another state?
•
Unused MSA Funds

Counted as Income
on final Montana
Income Tax Return
41
Planning
Technique
• Track medical expenses
January - December
• Deposit from savings to
MSA the amount of
eligible medical care
expenses for the year
42
Planning
Technique
• Withdraw from MSA total
amount needed for eligible
medical care expenses
during year
 One withdrawal
• Deposit back to savings
43
Forms
Department of Revenue
www.revenue.mt.gov
44
MSA Reporting
Requirements
• File Form:
 Annual Reporting Form for Self
Administered Individual
Accounts
 Department of Revenue
www.revenue.mt.gov
45
Enter Amount On
Montana Individual
Income Tax Return
• Form 2

Schedule II: Line 18
• Form 2M

Line 32
46
Form-MSA
Simple to fill out:
•
•
•
•
Name
Social Security Number
Name & Address of
Financial Institution
MSA account number
47
Form MSA: Summary
1. Current year deposits
• No more than $3,000
2. Deposits from prior years not
counted
3. Add lines 1 & 2
4. Add interest and other
income
5. Add lines 4 & 5
48
Percent of Montanans
with MSAs
• Only 1.4%
• Why?
49
Montana Medical
Care Savings
Accounts
MontGuide
199817 HR
50
Revised January 2015