Finance Questions

Posts Tagged ‘income distributions’

What are the basics of Archer Medical Savings Account (MSA)

Self-employed individuals covered under a high-deductible health plan and employees of “small employers” (on average no more than 50 employees during either of the two preceding calendar years) can:
a) deduct contributions
b) exclude from income employer contributions,
c) accumulate tax-deferred income and
d) receive tax-free distributions from the MSA to pay medical expenses.
Annual deductions are generally limited to 65% of the annual deductible for individual coverage, (the deductible amount under a “high deductible health plan” must be at least $1,700 and no more than $2,600) and 75% of the annual deductible for family coverage (deductible amount must be at least $3,450 and no more than $5,150).
The maximum out-of-pocket expenses for covered expenses cannot exceed $3,450 for individual coverage and $6,300 for family coverage.
Like IRAs, contributions can be made until the due date of the return without regard to extensions. As indicated, distributions from MSAs for the payment of medical expenses generally are excludable from gross income.
Distributions that are not for medical expenses are not only includable in income, but also subject to a 15% penalty tax. This penalty does not apply to distributions after age 65 or distributions made on account of disability or death. But such distributions are still subject to income tax.
Any balance remaining in a Medical Savings Account (MSA) upon an individual’s death is includible in his or her gross estate. But if the account holder’s surviving spouse is named beneficiary of the MSA, the MSA becomes the MSA of the surviving spouse and the MSA balance can be deducted from the decedent’s gross estate as a marital deduction. If the MSA passes to any other beneficiary, it ceases to be an MSA and the beneficiary is required to include the fair market value of the MSA assets as of the date of death in gross income for that year. The amount includible in gross income is reduced by medical expenses incurred prior to death.