MSU Extension: An MSA Can Be a Holiday Gift

This is one in a series of estate and legacy planning articles. Authors are Kaleena Miller, Madison-Jefferson County Extension Agent, kaleena.miller1@montana.edu and Marsha Goetting, MSU Extension Family Economics Specialist, marsha.goetting@montana.edu.

According to Marsha Goetting, MSU Extension family economics specialist, Montanans can make a gift to themselves and open a Medical Care Savings Account (MSA) or make deposits into existing MSAs before Dec. 31 and reduce their state income taxes for 2024.

MSA account holders may deposit up to $4,500 for eligible medical and long-term healthcare expenses during 2024. Even if you used your credit card for co-pays, you can still set up the MSA and withdraw the amount for eligible medical expenses for the year.

If you are a parent or grandparent, you could also make a gift of $4,500 to an employed child over age 18 to open their own MSA. That way, your adult children can also receive tax benefits. Or you could match what they put in an MSA. Just make sure the MSA account doesn’t go over $4,500.

“The 2023 Montana Legislature has extended the Montana Medical Care Savings Account Act into 2024 and beyond,” says Kaleena Miller, Madison-Jefferson County Extension Agent. Beginning in 2025, the contribution limit and tax deduction will be adjusted for inflation and rounded to the nearest $100 increment,t making the amount $4,600.

A person with taxable income over $20,500 could save approximately $265 in Montana income taxes by opening an MSA and depositing up to $4,500 for tax, Goetting said. Interest earned on the MSA is not subject to Montana income tax, and the balance at the end of the year rolls over for future use. That allows you to build up a tax-free fund for unexpected medical expenses. Any family who has a member with cancer can tell you about those unanticipated expenses.

Goetting added that an MSA can be left to immediate family members when an account owner dies. That’s where the legacy part comes in. By placing a payable-on-death designation (POD) on the account, individuals can leave those funds for a spouse, children, or parents to use for their medical expenses.

Miller said that if a person dies without choosing a payable-on-death beneficiary (POD), the money in an MSA will pass to heirs named in a written will. “If you do not have a written will, the MSA passes by Montana law to your heirs with priority given to a spouse,” Goetting added. “Either way, you create a legacy. If you do not have beneficiaries, you could name your favorite nonprofit in Whitehall as the POD beneficiary.” 

“The amount used to reduce income tax for Montana residents is the total amount deposited in an MSA during the tax year, not the amount withdrawn for eligible medical care expenses between January and December,” said Miller.

Eligible expenses include any items accepted by the IRS, including medical insurance premiums, prescription drugs, medical and dental services, nursing home care, eyeglasses, crutches, and transportation for medical care. Funds in the account can also be used to pay for healthcare sharing ministry fees.

IRS Publication 502 has a detailed list of eligible expenses and is easy to find. Just use your favorite browser and type in IRS Publication 502. If you don’t have a computer, ask members of the younger generation to print the publication for you.

 All resident taxpayers 18 and older are eligible to set up an MSA with a financial institution even if they have a similar plan, like a Section 125 Flexible Spending Account or a Federal Health Savings Account (HSA) provided by their employers. A taxpayer does not have to have a high-deductible health insurance plan to be eligible for the MSA, which is the requirement for an HSA.

“Montana Medical Care Savings Accounts (MSAs) for the 2024 Tax Year” is available at https://bit.ly/3VuR9sS. If you cannot access a computer or printer, call the MSU Extension Madison-Jefferson County Office for a copy of the printed information at 406-287-3282.