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WHAT IS THIS MSA STUFF?

July 05, 2002

A Medical Savings Account is an individual IRA-like account that can be opened in conjunction with a qualifying employer-sponsored or self-employed health insurance plan. For family coverage, the plan deductible needs to be between $3,300 and $4,950, with an out-of-pocket maximum of no more than $6,050. These amounts are lower for single-person coverage.

Individuals can make tax deductible contributions to their MSA; the maximum 2002 contribution is $3,712.50 (75% of the maximum allowed deductible). They can withdraw amounts tax free up to the amount of out-of-pocket expenses. Amounts not withdrawn accumulate on a tax-deferred basis and can be withdrawn at retirement much like IRAs.

The concept is a small-scale version of a typical self-insured corporate health plan, where the company pays health-claims out of its own funds but maintains a stop-loss for major claims. The MSA is conceptually a personal self-insurance reserve. As a practical matter, MSA participants often allow their MSA contributions to accumulate and pay their medical expenses using other funds; this allows MSA funds to accumulate tax-free.

MSAs are available only to self-employed individuals or small plans. To learn more, visit: http://moneycentral.msn.com/articles/insure/health/1423.asp

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