Definitions for "Medical savings accounts"
Keywords:  msa, hsa, catastrophic, fsas, unused
Savings accounts designated for out-of-pocket medical expenses. In an MSA, employers and individuals are allowed to contribute to a savings account on a pre-tax basis and carry over the unused funds at the end of the year. One major difference between a Flexible Spending Account (FSA) and a Medical Savings Account is the ability under an MSA to carry over the unused funds for use in a future year, instead of losing unused funds at the end of the year. Most MSAs allow unused balances and earnings to accumulate. Unlike FSAs, most MSAs are combined with a high-deductible or catastrophic health insurance plan.
An MSA is a tax-advantaged account created for the benefit of an individual in a high-deductible health plan who is either employed by a small employer (fewer than 50 employees), or is self-employed. Contributions are deductible if made by an eligible individual, and are excludable from income and wages (for employment tax purposes) if made by an employer. Contributions may be made either by the employee or the employer, but not both. Earnings grow tax-free and distributions for qualified medical expenses under Section 213(d) are tax-free. Rollover of unused funds is permitted from year to year, and funds are portable. Under the new Medicare legislation MSA balances may be rolled over into HSAs as of 1/1/04.
This is a variation on flexible spending accounts (FSAs). Similar to IRAs, employees make tax-free contributions to these accounts, to be used for medical expenses. With FSAs, the money contributed must be used the same year, or else it is forfeited.