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When it comes to paying for medical expenses, medical savings accounts (MSAs) and health savings accounts (HSAs) are two common types of tax-advantaged vehicles designed to help you cut down on costs. MSAs are for people enrolled in a high-deductible Medicare plan, while HSAs are designed for those enrolled in a typical high-deductible health plan (HDHP).
While MSAs and HSAs tout a number of similar characteristics, determining which account is right for you can be difficult. Read on for more on MSAs and HSAs, and how the two stack up.
Medical savings accounts are tax-advantaged savings accounts that qualifying individuals can use to pay for qualified medical expenses. The core benefit of an MSA is that distributions that are used to pay for qualified medical expenses are not taxed.
There are two main types of MSAs: Archer MSAs and Medicare MSAs. However, Archer MSAs have been largely phased out and have not been available for new enrollees since 2007.
Because HDHP plans have higher deductibles, they typically have lower premiums, making them an attractive option for relatively healthy individuals with minimal medical expenses. With that in mind, the table below outlines the minimum and maximum annual deductibles for HDHPs for 2020 and 2021.
|Minimum and Maximum Deductibles for HDHPs for 2020 and 2021|
|Self-only coverage||Family coverage|
|Minimum annual deductible||$1,400 (for 2020) |
$1,400 (for 2021)
|$2,800 (for 2020)
$2,800 (for 2021)
|Maximum annual deductible and other out-of-pocket expenses||$6,900 (for 2020)|
$7,000 (for 2021)
|$13,800 (for 2020)
$14,000 (for 2021)
Archer MSAs were originally designed for self-employed people and employees of certain small employers. However, Archer MSAs are now nearly extinct. After 2007, the IRS limited those who were eligible for an Archer MSA to the following groups:
To open a Medicare MSA, you must be enrolled in Medicare and be on a HDHP. Because Medicare recipients are not eligible for health savings accounts, Medicare MSAs are essentially HSAs for those on Medicare. In order to be eligible for Medicare, you must be at least 65 years old or have a special condition or disability.
Medicare MSAs are used to pay for qualified health expenses for the Medicare account holder, and instead of the account holder contributing to the fund, the Medicare program makes contributions to the Medicare MSA.
Like the Archer MSA, Medicare MSA distributions are not taxed as long as they are used to pay for qualified health expenses.
A health savings account is another popular tax-advantaged savings account for medical expenses. HSAs were designed to essentially replace the now almost-extinct Archer MSA. Here are some core features of an HSA:
The key takeaway is that HSAs offer the same core benefit of MSAs — allowing you to save and pay for qualified medical expenses, tax-free — but are more widely available.
As you can see, MSAs and HSAs share many common characteristics — their differences are in the details. The table below breaks down the major similarities and differences between MSAs and HSAs to help you determine which one is the right fit for you.
|MSA vs. HSA|
|You are enrolled in a high-deductible Medicare MSA Plan.||You are covered by an HDHP.
You cannot be enrolled in Medicare.
You cannot be claimed as a dependent on someone else’s tax return.
|Generally, the amount your plan contributes is lower than your deductible.||For 2020, if you have self-only HDHP coverage, you can contribute up to $3,550. For 2021, the limit is $3,600.
For 2020, if you have family HDHP coverage, you can contribute up to $7,100. For 2021, the limit is $7,200.
|Your health care plan provider deposits money into your MSA.||Qualifying individuals or anyone else, including your employer or a family member.|
|Medicare MSA distributions can only be used to pay for the qualified medical expenses of the person who is enrolled in Medicare. Distributions are not taxed.||HSA distributions to pay for qualified medical expenses are not taxed.|
|Contributions to Medicare MSAs are not included in your income.||Aside from employer contributions, HSA contributions are deductible on the eligible individual’s return. Employer contributions are not included in income.|
The choice between a MSA or HSA really boils down to this:
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