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Texas
Agriculture Archive
April 18, 2003
Explore Medical Savings Accounts through FB Bank
With the cost of health care currently rising on an average of 13 percent per year, and with a growing number of Americans unable to afford health insurance, consumers are scrambling to find alternatives to traditional sources.
One solution—a Medical Savings Account (MSA)—allows customers to decide how best to spend their health care dollars. A MSA is a tax-exempt trust or custodial account established for the purpose of paying medical expenses in conjunction with a high-deductible health plan. As medical expanses are incurred, funds from a MSA can be used to meet those expenses.
Combined with a high deductible health plan, MSAs are an alternative for a growing number of Americans. And now, Farm Bureau Bank is offering MSAs to Texas Farm Bureau members.
MSAs are not for everyone. The following Q&A answers basic questions about MSAs and who is eligible:
Q. What is a Medical Savings Account (also referred to as MSA)?
A. A Medical Savings Account is a tax-exempt trust or custodial account established for the purpose of paying medical expenses. Money deposited into this account is deductible on your federal income taxes. Farm Bureau Bank offers the Medical Savings Account to members of the Texas Farm Bureau.
Q. Who is eligible for a Medical Savings Account?
A. A self-employed person (or the spouse of a self-employed person) maintaining an individual or family High Deductible Health Insurance Plan. Please refer to IRS Publication 969 on their website to see if you meet the criteria as self-employed.
Q. How much can be contributed to the Medical Savings Account?
A. By law, contribution limits are based on your High Deductible Health Plan deductible. Individuals may contribute 65 percent of their annual HDHP deductible and families may contribute 75 percent of their annual HDHP deductible into their Medical Savings Account. This amount is prorated based on the number of months that you are eligible to have a Medical Savings Account.
Q.What are the tax benefits of establishing a Medical Savings Account?
A. —Cash contributions made to a Medical Savings Account during a tax year are not included in your federal gross income. This means the money you contribute into your Medical Savings Account is subtracted off of your income.
—Interest earnings accumulate tax deferred.
—Withdrawals from a Medical Savings Account for qualified medical expenses are free from federal income tax.
Q. What are qualified expenses?
A. Qualified Medical expenses are defined under IRS Code Section 213(d). By definition, these expenses must be incurred primarily to alleviate or prevent a physical or mental defect or illness.
You will notice that some expenses, for example dental and vision expenses, may be paid for from your Medical Savings Account, but are not covered benefits under your High Deductible Health Plan.
Q. How do I withdraw money to pay for qualified expenses?
A. The method of withdrawal is defined by the financial institution you select for your Medical Savings Account. The Farm Bureau Bank offers both checks and a Medical Savings Account Checkcard.
Q. What if I use funds to pay for non-qualified medical expenses?
A. These withdrawals will be considered taxable income and may be subject to a 15 percent federal tax penalty and possibly a state penalty (depending on the state in which you reside). The penalty will not apply for withdrawals made after the date you attain age 65, become totally and permanently disabled, or die.
Q. What happens at age 65 when I am no longer eligible to contribute to a Medical Savings Account?
A. You may withdraw all or part of the funds in your Medical Savings Account. The withdrawn funds will be subject to ordinary income tax. No penalty will apply. If you choose, you may leave funds in the account and continue to pay qualified expenses.
Q. Who can answer questions specific to the Medical Savings Account?
A. Farm Bureau Bank utilizes MSAVER Resources, L.L.C. as the administrator for their Medical Savings Account program. MSAVER specializes in the administration of Medical Savings Accounts and has a customer service team trained and ready to answer questions you may have about your account. Their number is 1-877-662-9298.
For additional information you may refer to the Farm Bureau Bank Medical Savings Account website at www.farmbureaumsa.com
