An Archer MSA is a tax-advantaged savings account paired with a high-deductible health insurance plan

An Archer Medical Savings Account (Archer MSA) is a savings account designed to hold money specifically for medical expenses. You contribute pre-tax dollars — money taken from your paycheck before taxes are calculated — and the money grows without being taxed. When you use it to pay for may have access to medical costs, those withdrawals are also tax-free. The account is paired with a high-deductible health insurance plan, meaning your insurance has a higher deductible (the amount you pay out of pocket before insurance kicks in) than a standard plan.

Archer MSAs are no longer available to new enrollees. They were created in 1996 as a pilot program and were replaced by Health Savings Accounts (HSAs) in 2003. However, if you already had an Archer MSA before 2008, you can keep it and continue to use it. The rules and contribution limits for existing Archer accounts remain largely the same as they were when the program was active.

Key Takeaways

  • Archer MSAs are closed to new account holders but remain available to people who opened them before 2008.
  • Money you contribute is not subject to federal income tax, and withdrawals for may have access to medical expenses are also tax-free.
  • Your Archer MSA must be paired with a high-deductible health insurance plan that meets specific deductible and out-of-pocket limits.
  • If you withdraw money for non-medical expenses before age 65, you pay income tax on the withdrawal plus a 20 percent penalty.
  • After age 65, you can withdraw money for any reason, though non-medical withdrawals are taxed as regular income.

Who can keep an Archer MSA today

You can maintain an Archer MSA only if you opened one before January 1, 2008. The account does not close automatically, and you do not need to do anything special to keep it active — you straightforward continue to use it under the same rules that applied when you opened it.

If you are self-employed or work for a small employer (generally 50 or fewer employees), you may have been may be able to access to open an Archer MSA during the years it was available. If you did, you can continue contributing and using the account today. If you did not open one before the important date, you cannot open a new Archer MSA now.

How contributions and withdrawals work

Money you put into an Archer MSA reduces your taxable income for the year. If you are self-employed, you deduct contributions on your tax return. If your employer contributes on your behalf, that money does not count as taxable income to you. The account balance rolls over from year to year — you do not lose unused money at the end of the year.

You can withdraw money from your Archer MSA to pay for may have access to medical expenses. These include doctor visits, prescription medications, dental work, vision care, mental health treatment, and many other health-related costs. You can also use the money to pay your health insurance premiums if you are unemployed or self-employed. Withdrawals for these purposes are not taxed.

If you withdraw money for something that is not a may have access to medical expense, you owe income tax on the amount withdrawn plus a 20 percent penalty — unless you are age 65 or older. After 65, you can withdraw money for any reason without the penalty, though non-medical withdrawals are still subject to income tax.

The high-deductible health plan requirement

To have an Archer MSA, you must be enrolled in a high-deductible health insurance plan. The plan must meet minimum and maximum deductible amounts set by the IRS. These limits change each year. For example, in recent years, a self-only plan required a deductible between roughly $1,650 and $4,150, while a family plan required a deductible between roughly $3,300 and $8,300. You should check the current year's limits with your insurance provider or the IRS website.

The high deductible means you pay more out of pocket for medical care before your insurance begins to pay. This is why the Archer MSA exists — to help you set aside money to cover those costs. If you drop your high-deductible plan or switch to a standard plan with a lower deductible, you can no longer contribute to your Archer MSA, though you can keep the account and continue to use the money already in it.

Contribution limits and how they work

The IRS sets annual contribution limits for Archer MSAs. These limits are a percentage of your health insurance deductible — typically 65 percent for self-only coverage and 75 percent for family coverage. Because the deductible varies by plan and changes yearly, your contribution limit also varies. Your insurance provider or tax professional can tell you the exact limit for your plan in any given year.

You can contribute the full annual amount in a lump sum or spread contributions throughout the year. If you contribute more than the limit, you owe a 6 percent excise tax on the excess amount each year until you withdraw it. This is a penalty on top of regular taxes, so it is important to track your contributions carefully.

Tax reporting and record-keeping

You must report Archer MSA contributions and withdrawals on your annual tax return. Contributions are reported on Form 8853 (Archer MSAs and Long-Term Care Insurance Contracts), which you file with your main tax return. You also need to keep records of what you spent the money on — receipts, invoices, or statements showing that withdrawals were for may have access to medical expenses.

If you are audited, the IRS may ask to see proof that your withdrawals were for legitimate medical costs. Keeping organized records protects you if questions arise. Many people keep a straightforward spreadsheet or folder with receipts and dates.

How an Archer MSA differs from an HSA

Health Savings Accounts (HSAs) replaced Archer MSAs as the primary tax-advantaged medical savings tool. Both accounts work similarly — you contribute pre-tax money, it grows tax-free, and withdrawals for medical expenses are not taxed. However, HSAs have higher contribution limits, are available to anyone with a may have access to high-deductible plan (not just self-employed people or small business employees), and have no age limit on when you can open one.

If you have an existing Archer MSA, you can keep it. You cannot open a new one. If you are considering a medical savings account for the first time, an HSA is the account you would look into instead. The rules are similar enough that understanding how an Archer MSA works gives you a foundation for understanding HSAs.

Frequently Asked Questions

Can I still use my Archer MSA if I change jobs?

Yes. Your Archer MSA belongs to you, not your employer. As long as you remain enrolled in a may have access to high-deductible health plan, you can continue to use the account. If your new employer offers a high-deductible plan, you can stay in your Archer MSA. If not, you can keep the account and use the balance for medical expenses, but you cannot make new contributions.

What happens to my Archer MSA if I turn 65?

Your account does not close. You can continue to use it for medical expenses. After 65, you can also withdraw money for non-medical reasons without the 20 percent penalty, though you will owe income tax on those withdrawals. Many people use their Archer MSA to pay for Medicare premiums and out-of-pocket medical costs in retirement.

Can I transfer money from my Archer MSA to an HSA?

No direct transfer is allowed. However, you can withdraw money from your Archer MSA and deposit it into an HSA if you open one, as long as you follow the rules for each account. You should speak with a tax professional before doing this, as the process has specific timing and reporting requirements.

What counts as a may have access to medical expense?

may have access to expenses include doctor and dentist visits, prescription medications, vision care, mental health treatment, medical equipment, and many other health-related costs. Over-the-counter medications generally do not count unless prescribed by a doctor. The IRS publishes a detailed list of what qualifies. When in doubt, keep the receipt and ask your tax professional.