Bozeman - Montana State University Extension has published free guidance on Montana Medical Care Savings Accounts, or MSAs.
Extension has updated the MontGuide “Montana Medical Care Savings Accounts (MSAs) for the 2020 Tax Year” and is available at http://msuextension.org/publications/FamilyFinancialManagement/MT199817HR. pdf. Paper copies are also available from county Extension or reservation offices.
An MSA is an account used to reduce the cost of saving for medical expenses and long-term health care. According to Marsha Goetting, MSU Extension family economics specialist, an MSA offers individuals several benefits, including a reduction on state income taxes.
For example, if a person has taxable income over $18,400 they could save approximately $276 in state income taxes by opening an MSA and depositing up to $4,000. The MSA earns interest free from Montana income taxation.
Goetting added that an MSA could also be a legacy. By placing a payable-on-death (POD) designation on the account, individuals can provide a legacy for spouses, children or grandchildren to use on their medical expenses. There are also no inheritance taxes on MSAs, and as long as an individual’s estate is less than $11.58 million, there is no federal tax either.
“Without a POD beneficiary, the money passes to your heirs according to your written will,” said Wendy Wedum, Pondera County Extension agent. “If you do not have a written will, the MSA passes by Montana law to your heirs with priority given to a spouse. Either way, a legacy is provided. If you do not have heirs, you could name your favorite nonprofit as the POD beneficiary.”
Although the maximum amount used to reduce a Montanan’s taxable income annually is $4,000, Goetting and Wedum said a person could also put less than $4,000 in an MSA. The amount used to reduce income for Montana residents is the total deposit in the MSA during the tax year, not the amount withdrawn for eligible medical care expenses during the year.
Eligible expenses include medical insurance premiums; prescription drugs; medical, dental and nursing home care; eyeglasses; crutches; and transportation for medical care.
“Montana considers eligible medical care expenses as any items the IRS accepts,” Goetting said. The IRS publication 502 provides a detailed list of eligible expenses and can be found at http://www.irs.gov/publications/p502/index.html.
All resident taxpayers are eligible to establish an MSA even if they have another health care plan provided by their employer or a Section 125 Flexible Spending Account or a Federal Health Savings Account. A taxpayer does not have to be in a high deductible health insurance plan to be eligible for the MSA and any money left in the MSA rolls over to be used for eligible medical expenses in future years.
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