Medical Savings Accounts:
How they can help you

Pat Ludwig, Retired MEA-MFT

EDITOR'S NOTE:
It’s important to note that the accounts described below avoid only Montana income tax and can only be used to pay premiums if a person is retired and in a co-pay relationship. When in doubt, check with your MEA-MFT field consultant.

With the continual growth in medical expenses, especially for the retired, this information on Montana Medical Savings Accounts (MSA) might be of interest.

By law, a Montana resident can set aside up to $3,000 annually in a fund to be used for expenses not covered by Medicare or other insurances.

This money is not subject to Montana income tax, nor is any interest incurred. The money must go into a separate account to be used for any medical expenses not already covered, including medical insurance premiums, drugs, dental, hearing aids, transportation for medical care, and purchasing long term care insurance or annuity.

The MSA can be set up for only one individual; however, a spouse can set up one as well. This means a couple can set aside $6,000 yearly for medical expenses. It can be set up by a registered account administrator or can be self administered. Any money left over at the end of the year will remain in the account, and an additional amount can be added to get the account to $3,000 again. If the account does have a balance, it will continue to grow for needed medical expenses down the years.

Although medical expenses paid from the MSA may not be used in any other section of the Montana tax return, the taxpayer can avoid the 7.5 percent floor needed for a legitimate deduction. The amount deposited into the MSA each year is deducted from the original gross income before doing other calculations. This reduces an individual gross income and saves on the taxes. The interest on this account is tax-free.

Eligible medical expenses are those that would be allowed as itemized deductions for Montana income tax purposes. They may not be deducted elsewhere on the tax forms. Money in an MSA can be used for the individual and eligible dependents including a spouse or a child.

The person using the MSA is required to keep records of contributions and receipts to verify the medical expenses used. These accounts can be set up through most financial institutions, and the record sheets are available from the Montana State Extension Services.

The Extension Service also has an excellent Montguide detailing the ins and out of the MSA. For more information, contact the Montana Department of Revenue by calling 406-444-6900.