What a Medical Savings Account Is

A Medical Savings Account (MSA) is a tax-advantaged savings account paired with a high-deductible health insurance plan. You put pre-tax money into the account, use it to pay medical bills, and any balance you don't spend rolls over to the next year. The account stays in your name and grows tax-free as long as you use withdrawals for may have access to medical expenses.

MSAs come in two forms: Archer MSAs and Health Savings Accounts (HSAs). Archer MSAs are older and rarely available to new enrollees—most people with an MSA today actually have an HSA, which works similarly but with higher contribution limits and fewer restrictions. Both let you build savings over time instead of losing unused money at the end of the year the way you do with a flexible spending account.

Key Takeaways

  • You must be enrolled in a high-deductible health plan to open an MSA or HSA, and you cannot have other health coverage that overlaps with it.
  • Money you contribute reduces your taxable income, and withdrawals for may have access to medical expenses are tax-free.
  • Unused money stays in your account and earns interest or investment returns year after year, unlike other health spending accounts.
  • You can withdraw money for non-medical expenses after age 65 without penalty, though you will owe income tax on the amount.
  • Withdrawals for non-may have access to expenses before age 65 trigger both income tax and a 20 percent penalty.

Who Can Open an MSA or HSA

To open an account, you must be enrolled in a high-deductible health plan (HDHP). The IRS sets the minimum deductible each year—for 2024, that is $1,600 for individual coverage and $3,200 for family coverage. Your plan must also have an out-of-pocket maximum (the most you pay before insurance covers everything) that does not exceed $4,050 for individual or $8,050 for family coverage.

You cannot have other health coverage running at the same time. This means no spouse's plan, no parent's plan if you are under 26, and no Medicare. You also cannot be claimed as a dependent on someone else's tax return. If any of these explore to you, you are not may be able to access to open an account, though you may become may be able to access later if your coverage changes.

How Much You Can Contribute Each Year

The IRS sets contribution limits annually. For 2024, you can contribute up to $4,150 if you have individual coverage or $8,300 if you have family coverage. If you are 55 or older, you can add an extra $1,000 per year as a catch-up contribution. These limits change most years, so check the IRS website or your plan documents before you contribute.

You can contribute through payroll deduction (which reduces your gross pay) or by depositing money directly into the account yourself. If you contribute through payroll, you avoid both income tax and payroll tax on that money. If you deposit it yourself, you deduct it on your tax return. Either way, the money goes in pre-tax.

What You Can and Cannot Spend MSA Money On

may have access to medical expenses include doctor visits, hospital stays, prescription drugs, dental work, vision care, mental health treatment, and medical equipment like wheelchairs or hearing aids. You can also use the money for insurance premiums in specific situations: COBRA continuation coverage, health insurance while you are unemployed, and long-term care insurance premiums (up to a limit based on your age).

Non-may have access to expenses—cosmetic surgery, gym memberships, vitamins not prescribed by a doctor, and over-the-counter medications (except insulin)—cannot be paid with MSA money tax-free. If you withdraw money for a non-may have access to expense before age 65, you owe income tax on the amount plus a 20 percent penalty. After age 65, you can withdraw money for any reason, but non-medical withdrawals are taxed as ordinary income.

How MSA Money Grows Over Time

Unlike a flexible spending account, which forfeits unused money at the end of the year, an MSA rolls over indefinitely. If you contribute $4,150 and spend only $2,000 on medical bills, the remaining $2,150 stays in your account and is available next year. Many MSAs also let you invest the balance in mutual funds or other securities, so your money can earn returns the way a retirement account does.

This makes MSAs useful for people who expect to have lower medical expenses in the near term but want to save for future costs. Some people use them as a secondary retirement savings tool, since withdrawals after age 65 are taxed like regular income but not penalized. The account is yours to keep even if you change jobs or retire—it does not disappear when your coverage ends.

Withdrawals and Record-Keeping

You can withdraw money from your MSA anytime, but you need to keep records showing the expense was may have access to. The IRS does not require you to submit receipts when you withdraw, but you must be able to prove the expense was medical if you are audited. Keep your receipts, explanation of benefits statements, and any documentation from your provider for at least three years.

If you withdraw money and later realize the expense was not may have access to, you can put the money back into the account within a set timeframe (rules vary by account type). Some people withdraw money and reimburse themselves later, which lets the account balance grow longer. This strategy is legal as long as the expense was actually may have access to and you have documentation.

MSAs Versus HSAs: What Is the Difference

Archer MSAs and HSAs work the same way—both are tax-advantaged accounts paired with high-deductible plans—but HSAs have become the standard. Archer MSAs are closed to most new enrollees (you can only open one if you were self-employed or worked for a small employer when you first became may be able to access). HSAs have higher contribution limits, fewer restrictions on who can open them, and are offered by most insurers and employers.

If you have an Archer MSA, it continues to work as it always has. If you are shopping for an account now, you will almost certainly be opening an HSA. The rules about contributions, may have access to expenses, and rollovers are nearly identical, so the practical difference is minimal for most people.

Frequently Asked Questions

Can I use MSA money to pay my insurance deductible?

Yes. Your deductible is a may have access to medical expense, so you can use MSA funds to pay it. This is one of the main reasons people open these accounts—the money lets you cover the deductible without using after-tax dollars.

What happens to my MSA if I change jobs?

The account stays with you. You own it, not your employer. You can keep using it to pay medical expenses and keep contributing if you remain enrolled in a high-deductible plan through your new job or through the individual market. If you lose high-deductible coverage, you cannot contribute anymore, but you can still withdraw money for may have access to expenses.

Can I withdraw money for my spouse's medical expenses?

Yes, if you are married and file taxes jointly. You can also withdraw for your children's medical expenses. The money just has to go toward a may have access to medical expense for you or your spouse or dependent.

What if I do not spend all my MSA money before I turn 65?

The money stays in the account. After 65, you can withdraw it for any reason without the 20 percent penalty, though non-medical withdrawals are taxed as income. Many people use this feature to let the account grow as a long-term savings vehicle.

Do I have to use my MSA debit card, or can I pay out of pocket and reimburse myself?

Both work. Some accounts issue debit cards that you can use directly at pharmacies or medical providers. You can also pay with your own money and withdraw from the MSA later, as long as you have documentation of the expense. The timing does not matter—you can reimburse yourself months or years later.