What a Medical Savings Account Is

A Medical Savings Account (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 bills, and any balance you don't spend rolls over to the next year. The money grows tax-free as long as you use it for may have access to medical expenses.

MSAs come in two forms: Archer MSAs, which are older and rarely available to new enrollees, and Health Savings Accounts (HSAs), which are the modern version most people encounter. Both work the same way — you contribute money before taxes are taken out, the account earns interest or investment returns tax-free, and withdrawals for medical costs are not taxed.

The catch is that you must be enrolled in a high-deductible health plan (HDHP) to open one. Your deductible has to meet a minimum threshold set by the IRS each year, which changes annually. For 2024, that minimum is $1,600 for individual coverage and $3,200 for family coverage, though many plans have higher deductibles.

Key Takeaways

  • You must pair an MSA or HSA with a high-deductible health plan, and your deductible must meet the IRS minimum for that year.
  • Money you contribute is not subject to income tax, and withdrawals for may have access to medical expenses are not taxed either.
  • Unused money stays in the account year after year — there is no "use it or lose it" rule like some other health accounts.
  • You can withdraw money for non-medical expenses after age 65, though non-medical withdrawals before 65 are taxed and penalized.
  • may have access to expenses include deductibles, copays, prescriptions, dental work, vision care, and many other medical costs, but not insurance premiums in most cases.

How Much You Can Contribute Each Year

The IRS sets annual contribution limits that change each year. For 2024, you can contribute up to $4,150 for individual coverage or $8,300 for family coverage. These limits apply to all your MSAs and HSAs combined — if you have more than one account, the total across all of them cannot exceed the limit.

Your employer may contribute to your account, and that money counts toward the limit. If your employer puts in $2,000 and you put in $2,000, you have hit the $4,150 individual limit. You can contribute less than the limit, but you cannot exceed it without facing tax penalties.

If you turn 55 during the year, you can make an additional "catch-up" contribution of $1,000 on top of the regular limit. This catch-up contribution is available only to you, not to your spouse, even if they also have an MSA or HSA.

What Counts as a may have access to Medical Expense

may have access to expenses are medical, dental, and vision costs that you would normally pay out of pocket. This includes deductibles, copays, coinsurance, prescription drugs, and over-the-counter medications (with a prescription). Dental work like cleanings, fillings, and root canals counts. Vision care including eye exams, glasses, and contact lenses counts. Mental health treatment, physical therapy, and hearing aids all count.

Some expenses do not count. Health insurance premiums generally do not count, except for COBRA continuation coverage, long-term care insurance, and health insurance you pay for while receiving unemployment benefits. Cosmetic procedures do not count unless they are medically necessary — for example, reconstructive surgery after an injury counts, but cosmetic surgery does not.

Over-the-counter items like pain relievers, cold medicine, and allergy medication now count only if you have a prescription from a doctor. Vitamins and supplements do not count unless prescribed for a specific medical condition.

How to Use the Money and Track Withdrawals

You can withdraw money from your MSA or HSA in several ways. Most accounts come with a debit card that you can use at pharmacies, doctor's offices, and hospitals. You can also request a check or bank transfer to pay a medical provider directly. Some people pay the bill out of pocket and then reimburse themselves from the account later.

You are responsible for keeping records of what you spent the money on. The IRS does not require you to submit receipts when you withdraw, but you must be able to prove that the expense was may have access to if the IRS ever audits you. Save your receipts, explanation of benefits statements from your insurance, and invoices from providers.

If you withdraw money for a non-may have access to expense before age 65, you owe income tax on that amount plus a 20 percent penalty. After age 65, you can withdraw money for any reason — the money is taxed as regular income if it is not for a medical expense, but the penalty goes away.

The Difference Between an MSA and an HSA

Archer MSAs were created in 1996 and are no longer open to new enrollees in most cases. Only people who had an Archer MSA before 2006 can continue to contribute to one. Archer MSAs have lower contribution limits than HSAs and stricter rules about what employers can do with the accounts.

Health Savings Accounts (HSAs) replaced Archer MSAs as the standard tax-advantaged medical savings tool. HSAs have higher contribution limits, more flexibility, and are available to anyone with a may have access to high-deductible plan. If you are opening a new account today, it will be an HSA, not an Archer MSA.

Both accounts work the same way from the user's perspective — money goes in pre-tax, grows tax-free, and comes out tax-free for medical expenses. The main practical difference is that HSAs are easier to open and have higher limits.

What Happens to Money You Don't Spend

Unlike Flexible Spending Accounts (FSAs), which have a "use it or lose it" rule, MSAs and HSAs let you keep unused money indefinitely. If you contribute $4,150 and spend only $2,000 on medical bills, the remaining $2,150 stays in your account. It rolls over to the next year, and the year after that, for as long as you keep the account open.

The money in your account can be invested in mutual funds, stocks, or bonds, depending on what your account provider offers. Any earnings on that investment are also tax-free as long as the money stays in the account or is used for may have access to medical expenses.

If you leave your job or change health plans, you keep the money in your MSA or HSA. The account belongs to you, not your employer. You can continue to use it to pay for medical expenses even after you retire, as long as you keep the account open.

When You Lose Access to an MSA or HSA

You can only contribute to an MSA or HSA while you are enrolled in a high-deductible health plan. If you switch to a regular health plan with a lower deductible, you stop being able to contribute. However, you can still withdraw money from the account for may have access to medical expenses.

If you become covered by Medicare, you can no longer contribute to an HSA or MSA. You can still withdraw money for may have access to expenses, but you cannot add new money. Some people delay Medicare enrollment to keep contributing to their HSA, though this strategy has tax and legal limits.

If you close your account, you can withdraw all the money without penalty as long as you use it for may have access to medical expenses. If you withdraw money for non-may have access to expenses, you owe taxes and penalties on that amount.

Frequently Asked Questions

Can I use my MSA or HSA to pay for my health insurance premiums?

Not usually. Regular health insurance premiums do not count as may have access to expenses. However, you can use the account to pay for COBRA continuation coverage, long-term care insurance, and health insurance premiums while you are receiving unemployment benefits. Medicare premiums do not count either.

What happens if I withdraw money for something that is not a medical expense?

Before age 65, you owe income tax on the withdrawal plus a 20 percent penalty. After age 65, you owe income tax but no penalty. Keep receipts for all withdrawals so you can prove to the IRS that an expense was medical if you are ever audited.

Can I have both an MSA and an HSA at the same time?

No. You can have only one MSA or HSA at a time. If you have multiple accounts, the total contributions across all of them cannot exceed the annual limit. If you exceed the limit, you owe taxes and a 6 percent penalty on the excess amount.

Do I have to use my MSA or HSA money by the end of the year?

No. Unlike FSAs, there is no deadline to spend the money. Any balance rolls over to the next year and stays in the account indefinitely. You can let the money accumulate and use it years later for medical expenses.

What if I change jobs — do I lose the money in my account?

No. The account belongs to you, not your employer. When you change jobs, you can take the account with you, move it to a new provider, or leave it where it is. You keep all the money and can continue to use it for medical expenses.