Understanding Medical Savings Accounts (United States) and Their Uses

Medical Savings Accounts (MSAs) are a type of savings account that allows individuals to set aside money for medical expenses. They are designed to help people cover out-of-pocket costs for medical care.

MSAs are available to self-employed individuals, small business owners, and employees of certain small businesses. These accounts are often used in conjunction with high-deductible health plans (HDHPs).

Money contributed to an MSA is tax-free, and withdrawals for qualified medical expenses are also tax-free.

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In the United States, there are several types of medical savings accounts that can help you save for medical expenses. An HSA (Health Savings Account) is a bank account you use to save money for medical expenses, and you can keep the money in the account for as long as you want.

You can contribute up to $4,300 to an HSA in 2025 if you're a single person, and some employers contribute money into your HSA as well. With an HSA, you can claim a tax deduction on the savings, earn tax-free interest, deduct qualified medical expenses, and transfer the HSA to a new employer or yourself if you change jobs.

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You can also use an MSA (Medical Savings Account), which is similar to an HSA but is for people who are self-employed and employees of small businesses (less than 50 employees), and their spouses. The amount you can set aside depends on your yearly income and health plan deductible.

Here are some key similarities and differences between HSAs and FSAs (Flexible Spending Arrangements):

Overall, medical savings accounts can be a great way to save for medical expenses and reduce your taxable income.

An HSA is a bank account you use to save money for medical expenses, with a contribution limit of $4,300 for a single person in 2025.

You can qualify for an HSA with a high deductible health plan (HDHP) that has deductibles meeting or exceeding $1,650 for a single person in 2025.

HSAs offer tax benefits such as claiming a tax deduction on savings, earning tax-free interest, and deducting qualified medical expenses.

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With an HSA, you can carry over unused funds into the next year, and after age 65, you can take out the savings for non-medical expenses without penalty.

MSAs are similar to HSAs, but are for self-employed individuals and employees of small businesses (less than 50 employees), and their spouses.

MSAs have a unique feature where either you or your employer can put money into the account, but not both in the same year.

Here's a summary of the main types of medical savings accounts:

A Health Savings Account (HSA) is a great way to save money for medical expenses.

You can contribute up to $4,300 to an HSA in 2025 if you're single, and some employers even contribute to it for you.

To be eligible for an HSA, you must be enrolled in a high-deductible health plan (HDHP) with a deductible of over $1,650 for a single person in 2025.

Here are some benefits of having an HSA:

With an HSA, you can carry over unused funds into the next year, and after age 65, you can take out the savings for non-medical expenses without penalty.

You can open an HSA through a bank or insurance company, and some employers may manage the account for you, allowing you to have pre-tax dollars put into the account.

If you're self-employed or an employee of a small business, you might be eligible for a Medical Savings Account (MSA), which is similar to an HSA but has different eligibility requirements.

Here are some key differences between HSAs and MSAs:

To open an HSA, you'll need to follow these steps:

1. Make sure you're eligible to open an HSA

2. Pick an HSA provider that meets your needs

3. Set up your investments to grow your savings over time

Don't forget to invest your HSA to make the most of it – less than 20% of participants invest their HSA assets, so you can make the most of this valuable wealth-building tool!

Flexible Spending Account (FSA) is a pre-tax savings account offered by an employer for any type of health plan.

You can use the money to be reimbursed for medical expenses, but self-employed individuals cannot get an FSA.

Your employer puts part of your pre-tax salary into an account, and they may also contribute to it, making it not part of your gross income.

You don't need to file tax documents for your FSA, and when you take money out for qualified medical expenses, it's tax-free.

Like a credit line, you can use the account before you've put funds in it, but be aware that any unused funds do not roll over to the next year.

You will lose any money you put into the account if you don't use it by the end of the year, and you also cannot take an FSA with you if you change jobs.

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To qualify for a Medical Savings Account (MSA), you'll need to meet specific requirements. These qualifications are outlined in the IRS Form 8853 instructions, which involve using a worksheet to determine eligibility.

To qualify for an MSA, your financial institution must include the words "Medical Savings Account" or the letters "MSA" on your statement, as well as in the name, title, description, or designation of the account. This ensures that your account is recognized as an MSA by the IRS.

You can use an MSA to pay for eligible medical, vision, and dental expenses, as defined by the Internal Revenue Code. This includes health insurance and supplemental Medicare premiums, long-term care expenses, and transportation to and from medical appointments.

The amount you can contribute to an MSA depends on your yearly income and health plan deductible. For self-employed individuals and employees of small businesses (less than 50 employees) and their spouses, MSAs are available.

To be eligible to contribute to an MSA, you can't be enrolled in a health plan sponsored by your spouse or parent that is not an MSA-eligible health plan, you can't be enrolled in Medicare, and you can't be claimed as a dependent on someone else's tax return.

Here are the key qualifications for an MSA: