MSA’s
MSA stands for Medical Savings Account. MSA’s are often used by self employed individuals to sock away pre-tax dollars earmarked for medical expenses. To take advantage of these savings accounts you have to also be participating in a high-deductible medical insurance plan. That is to say that you cannot have a low deductible insurance plan (one that has a $200.00 deductible for example) and fund an MSA for use with that insurance plan. In short the two can’t co-exist, you must have a high deductible medical insurance policy. Once the funds from your MSA pay for expenses up to your deductible any remaining funds can be rolled into the account for the next tax year or you can take the money out of the MSA as taxable income. You can read the IRS’s documentation on the MSA here.
The person who sets up the fund is the one responsible for paying into the MSA fund. Employers may not pay into it.
HSA’s
HSA stands for Health Savings Account. Similar to the MSA above individuals must have a High Deductible Health Plan (HDHP) and they contribute funds into the account pre-tax. All funds withdrawn from said account for qualified medical purposes are tax-free up to the point of reaching the HDHP’s deductible. There is a maximum amount of money allowed to be depositied into an HSA account. Congress has set limits and you should determine what those limits are for your situation. As of the time of this writing you can deposit $2,850.00 for an individual or $5,650.00 into a family account.
Since employers can contribute to the HSA it is important to note that those funds are actually placed into the ownership of the employee immediately. Also, if you have an IRA (and I do) and you want to roll over some funds from that IRA into an HSA up to the maximum of one year’s allotment you can do so once. That one time rollover could be nice for those in a tight squeeze, but you’ll want to carefully consider the long term investment ramifications.
You can read more about HSA’s, which have all but replaced MSA’s on Wikipedia where lots of useful, detailed information can be found. You may also choose to read up on the US Treasury’s website.
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