Home
Calculators
- Mortgage
- Taxes
- Retirement
- Debt
- Savings
- See all—over 100
Learning Center
About Us

Overview of Health Savings Accounts

Several years ago, the Internal Revenue Service experimented with a new kind of tax-advantaged savings account to encourage persons to save for their own healthcare cost needs. Called the Archer medical savings account, or MSA for short, this plan came under the same IRS code section for individual retirement arrangements (IRAs). Today there are two plans under this code: the MSA and the health savings account, or HSA.

Archer medical savings accounts were designed especially for self-employed individuals as well as for employees of certain small businesses. Health savings accounts are designed for individuals and their families who are not covered by other health insurance plans. While the qualifications for participation in the MSA and HSA are different, many of the features are the same. In this article, we will discuss those features. Note, however, that the HSA is intended to eventually replace the Archer MSA.

MSAs and HSAs allow participants to save money on a tax-deferred basis for future healthcare costs. Money deposited into a plan must be held by a custodian, just like IRA money. Withdrawals from the plan must be used to pay for qualifying medical expenses and are paid tax-free. The amount that may be deposited is limited.

Each participant must also own a high-deductible health plan. High-deductible health plans are medical insurance plans that meet the IRS' requirements for a large deductible to be paid by the participant before benefits may be paid. When applying for such a policy, it is wise to ask the insurer whether its plan qualifies before signing on the dotted line. (The requirements for the high-deductible policy are different for the Archer MSA and the HSA.) The plan deductible amount also affects the maximum tax-free deposit to the MSA or HSA. In 2007 and afterward, the maximum tax-free deposit may be made into an HSA regardless of the amount of the health plan deductible. However, the plan deductible still affects the maximum tax-free deposit into an Archer MSA.

Amounts deposited to the savings part of the plan can be invested, and amounts not used can grow in the plan for future years tax-free. These plans are suitable for individuals (and families) who are not covered by other medical insurance, and provide a way for persons to save for their own future medical cost needs.