HSAs and MSAs are different accounts with different rules

An HSA (Health Savings Account) and an MSA (Medical Savings Account) are not the same thing, though they both let you set aside pre-tax money for medical expenses. The key difference: HSAs are available to almost anyone with a high-deductible health plan, while MSAs are only for self-employed people and small business owners. HSAs also have higher contribution limits and fewer restrictions on how you use the money.

If you have a regular job and a high-deductible health plan through your employer, you almost certainly have access to an HSA. If you are self-employed or own a small business, you may have access to an MSA instead, or possibly both. The account type you can open depends on your employment status and the type of health insurance you carry, not on your choice.

Key Takeaways

  • HSAs work with high-deductible health plans and are open to employees and self-employed people; MSAs are only for self-employed individuals and small business owners.
  • HSA contribution limits are higher than MSA limits, and HSAs let you carry unused money forward indefinitely, while MSA rules are stricter.
  • Both accounts use pre-tax dollars, so money you contribute reduces your taxable income for the year.
  • Money in an HSA can be invested and grow over time; MSA rules limit how you can use the funds.
  • If you are unsure which account you have access to, check your health plan documents or ask your employer's benefits department.

How HSA and MSA contribution limits differ

HSA contribution limits change each year and depend on whether you have individual or family coverage. For 2024, the limit for individual coverage is $4,150 per year, and for family coverage it is $8,300 per year. These limits are set by the IRS and increase slightly most years to account for inflation.

MSA contribution limits are lower and calculated differently. For self-employed people, the limit is typically 75 percent of your health insurance premium, up to a maximum that also changes yearly. For employees of small businesses, the limit is usually 65 percent of the premium. Because MSA limits depend on what you pay for insurance, they vary widely from person to person.

Both account types let you carry unused money forward to the next year—you do not lose it if you do not spend it. This makes both accounts useful for building up savings for future medical costs or retirement.

What you can spend HSA and MSA money on

Both accounts cover the same basic medical expenses: doctor visits, prescriptions, dental work, vision care, mental health treatment, and medical equipment like hearing aids or wheelchairs. You can also use the money to pay your health insurance deductible, copays, and coinsurance. Expenses that are not covered—like cosmetic surgery or most over-the-counter vitamins—cannot be paid from either account.

The main practical difference is that HSA money is more flexible. Once you turn 65, you can withdraw HSA money for any reason without penalty (though you will owe income tax on non-medical withdrawals). MSA rules do not allow this flexibility; you must use MSA money only for medical expenses, even after 65.

How to know which account you have access to

If you work for an employer and have a high-deductible health plan, you have access to an HSA. Your employer may offer it directly through payroll, or you may need to open one yourself at a bank or financial institution. Check your health plan documents or ask your benefits department whether an HSA is available to you.

If you are self-employed or own a business with fewer than 50 employees, you may be able to open an MSA. You will need a high-deductible health plan and must meet the IRS definition of self-employed or small business owner. Some self-employed people can open either an HSA or an MSA, depending on their situation; a tax professional can tell you which option applies to you.

If you are not sure whether your health plan qualifies as high-deductible, look at your plan documents or call your insurance company. A high-deductible plan typically has a deductible of at least $1,600 for individual coverage or $3,200 for family coverage (these amounts change yearly).

How HSAs and MSAs reduce your taxes

Money you contribute to either account lowers your taxable income for the year. If you contribute $3,000 to an HSA and earn $50,000, you only pay income tax on $47,000. This tax break applies whether you contribute through payroll deduction (which is automatic) or by depositing money yourself (which requires you to deduct it on your tax return).

The money inside the account also grows tax-free. If you invest your HSA balance in stocks or mutual funds and it earns $500 in gains, you do not owe tax on those gains. When you withdraw money to pay for medical expenses, that withdrawal is also tax-free. This triple tax advantage—deduction going in, growth inside, tax-free withdrawal—is why HSAs and MSAs are valuable for long-term medical savings.

What happens to HSA and MSA money if you change jobs or insurance

HSA money belongs to you, not your employer. If you leave your job, change health plans, or retire, the money stays in your account and you keep control of it. You can take the account with you to a new employer, move it to a different bank, or leave it invested and untouched for years. There is no time limit on how long you can hold HSA money.

MSA rules are stricter. If you leave self-employment or your business grows beyond 50 employees, you may no longer be able to contribute to an MSA. Money already in the account stays yours, but you cannot add new contributions. Some people in this situation switch to an HSA if they enroll in a high-deductible health plan through a new employer.

When to choose an HSA over an MSA if you have a choice

If you are self-employed and have the option to open either account, an HSA is usually the better choice. HSA contribution limits are higher, the rules are simpler, and you have more flexibility after age 65. The only reason to choose an MSA is if your health insurance premium is very high and the MSA contribution limit (75 percent of your premium) exceeds what you could contribute to an HSA.

If you are an employee, you do not have a choice—you can only open an HSA if your employer offers one and you are enrolled in a high-deductible plan. If your employer does not offer an HSA, you can open one on your own as long as you have a may have access to high-deductible health plan.

Frequently Asked Questions

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

No. IRS rules prohibit you from holding both accounts in the same year. If you are self-employed and have both a high-deductible health plan and a business, you must choose one. A tax professional can help you decide which makes sense for your situation.

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

Before age 65, you owe income tax on the withdrawal plus a 20 percent penalty. After age 65, you owe income tax but not the penalty. MSA withdrawals for non-medical expenses are taxed the same way, with no penalty after 65.

Do I have to use my HSA money every year or lose it?

No. HSA money rolls over indefinitely. You can leave it untouched for decades if you want, and it can be invested to grow. MSA money also rolls over, so neither account has a "use it or lose it" rule.

Can I use HSA or MSA money to pay for my spouse's medical expenses?

Yes, as long as your spouse is claimed as a dependent on your tax return. You can also use the money to pay for your children's medical expenses. The money does not have to be used only for the person whose name is on the account.

What if my employer closes the HSA plan?

Your money stays yours. You can move it to an HSA at another bank or financial institution. Your employer cannot take the money back or freeze it. The account is your property regardless of what happens to the employer's plan.