What an Archer MSA Actually Is

An Archer Medical Savings Account (Archer MSA) is a tax-advantaged savings account paired with a high-deductible health insurance plan. You put pre-tax money into the account, use it to pay medical expenses, and the money grows tax-free. The account stays with you — it does not disappear at the end of the year like a Flexible Spending Account does.

Archer MSAs are rare now. They were created in 1996 as a pilot program and have been frozen since 2008 — no new accounts can be opened, though people who had one before the freeze can keep theirs. If you are reading this because you already have an Archer MSA, this guide explains how it works. If you are looking to open a new account, you will need to look at Health Savings Accounts (HSAs) instead, which serve the same purpose and are still open to new account holders.

The core mechanics are straightforward: money goes in before taxes, you spend it on medical bills, and anything left over stays invested and grows. But the rules around who can have one, what counts as a medical expense, and what happens to unused money are specific enough that understanding them matters.

Key Takeaways

  • Archer MSAs are closed to new account holders as of 2008, but existing account holders can continue using them.
  • You must be self-employed or work for a small employer (50 or fewer employees) to have had an Archer MSA before the freeze.
  • Money deposited into an Archer MSA reduces your taxable income, and withdrawals for may have access to medical expenses are tax-free.
  • Unused money rolls over year to year and can be invested, unlike FSAs which have a use-it-or-lose-it rule.
  • Withdrawals for non-medical expenses before age 65 are taxed as income plus a 20 percent penalty; after 65, only income tax applies.

Who Could Have Opened an Archer MSA (Before 2008)

Archer MSAs were only available to self-employed people and employees of small businesses with 50 or fewer employees. You also had to be covered by a high-deductible health plan — one with a deductible of at least $1,600 for individual coverage or $3,200 for family coverage (those numbers adjusted annually). If you worked for a large employer or were not self-employed, you could not open one.

The freeze in 2008 stopped new accounts from being created, but people who already had an Archer MSA before that date can keep theirs. If you are trying to figure out whether you have one, check your tax returns from 2007 or earlier — Archer MSA contributions show up on Form 8853.

How Money Goes In and What It Costs

Contributions to an Archer MSA reduce your taxable income dollar-for-dollar. If you earn $60,000 and put $2,000 into your Archer MSA, your taxable income drops to $58,000. Self-employed people deduct contributions on Schedule C; employees have contributions withheld by their employer before taxes are calculated.

The amount you can contribute each year depends on your deductible. The IRS sets annual limits based on what percentage of your deductible you can set aside. For 2024, the limits are roughly 65 percent of your individual deductible or 75 percent of your family deductible, though these percentages and the exact dollar amounts change yearly. Your bank or insurance company will tell you the current limit when you make a contribution.

Unlike a regular savings account, an Archer MSA can be invested. Many account holders put money into mutual funds or money market accounts within the MSA. Any growth on those investments is also tax-free, as long as the money stays in the account.

What Counts as a Medical Expense You Can Pay From the Account

may have access to medical expenses include doctor visits, hospital stays, prescription drugs, dental work, vision care, and mental health treatment. They also cover medical equipment like wheelchairs or hearing aids, and even some over-the-counter items like bandages or pain relievers — but only if you have a prescription or a doctor's order for them.

Health insurance premiums themselves do not count as may have access to expenses, with one exception: if you are self-employed and pay for your own health insurance, you can deduct those premiums on your tax return (though not from the Archer MSA itself). Cosmetic procedures, gym memberships, and vitamins without a medical reason do not count.

You pay the medical provider out of pocket, then reimburse yourself from the Archer MSA, or you can pay directly from the account if your bank allows it. Keep receipts and documentation — the IRS can ask for proof that expenses were actually medical and actually may have access to.

What Happens to Money You Do Not Spend

This is where an Archer MSA differs most from an FSA. Money left in the account at the end of the year does not disappear. It rolls over automatically, and you can use it in future years. Over time, an Archer MSA can build into a substantial reserve if you do not spend all of it.

Because the money can accumulate and be invested, some people treat an Archer MSA partly as a retirement savings tool. Once you turn 65, you can withdraw money from the account for any reason without penalty — you will owe income tax on non-medical withdrawals, but not the 20 percent penalty that applies before age 65.

Penalties and Taxes on Withdrawals for Non-Medical Reasons

If you withdraw money from your Archer MSA before age 65 and it is not for a may have access to medical expense, you owe income tax on the withdrawal plus a 20 percent penalty. So if you take out $1,000 for a non-medical reason and you are in the 22 percent tax bracket, you will owe $420 in taxes and penalties combined.

After age 65, the 20 percent penalty goes away. You can withdraw money for any reason, and you will only owe income tax on the amount withdrawn. This makes an Archer MSA function somewhat like a traditional IRA after you reach retirement age, though with different rules and contribution limits.

If you stop being covered by a high-deductible health plan, you can no longer contribute to the account, but you can still withdraw money from it for medical expenses without penalty. Non-medical withdrawals still trigger the 20 percent penalty if you are under 65.

How an Archer MSA Differs From an HSA

Health Savings Accounts (HSAs) work very similarly to Archer MSAs — same tax treatment, same may have access to expenses, same rollover rules. The main differences are that HSAs are still open to new account holders, they have higher contribution limits, and they are available to anyone with a high-deductible health plan, not just self-employed people and small business employees.

If you have an Archer MSA and are considering switching to an HSA, you can do so, but the rules around transferring money between them are strict. You cannot simply move the balance over — you have to close the Archer MSA and follow specific procedures. Talk to your bank or a tax professional before making that move.

Frequently Asked Questions

Can I still open a new Archer MSA?

No. The Archer MSA program was frozen in 2008, and no new accounts have been opened since then. If you want a tax-advantaged medical savings account now, you will need to look at Health Savings Accounts (HSAs), which are still open to new account holders and work on similar principles.

What happens to my Archer MSA if I change jobs or retire?

The account stays with you. You own it, not your employer. If you change jobs, you keep the account and can continue using it for medical expenses. If you retire, you can still withdraw money for medical expenses without penalty, and after age 65 you can withdraw for any reason with only income tax owed.

Do I have to use my Archer MSA money every year or does it roll over?

It rolls over automatically. Unlike a Flexible Spending Account, there is no use-it-or-lose-it rule. Money you do not spend stays in the account and can be used in future years. The balance can grow and be invested, making it possible to build a substantial reserve over time.

Can I use my Archer MSA to pay for my spouse's medical expenses?

Yes, as long as your spouse is covered by your family health insurance plan. You can also use it for your children's medical expenses if they are covered under your plan. The expenses have to be may have access to medical expenses, but the person receiving the care does not have to be the account holder.

What records do I need to keep for Archer MSA withdrawals?

Keep receipts and documentation showing the date, provider, and nature of each medical expense. The IRS can request proof that withdrawals were actually for may have access to medical expenses. You do not have to submit receipts with your tax return, but you need to have them available if you are audited.