Open a Montana medical savings account before Dec. 31 and save on income taxes

Have you had any medical expenses so far this this year that weren’t covered by your health insurance policy, a flexible spending account (FSA) or your Federal Health Care Savings Account (HSA)? If so, you can still open a Montana Medical Care Savings Account (MSA) by Dec. 31 and cover those expenses. If you deposit up to $3,500, (the maximum in 2018) you can reduce your Montana adjusted gross income by that amount. Doing so will result in a tax savings of about $242 that is, if you have taxable income above $17,900.

This is really a good deal for Montanans! Thank your legislators. Yet, in past years only 1.4 percent of Montanans have taken advantage of this opportunity. When I ask why, many explain that they were told they were ineligible because they don’t have a high deductible health insurance policy. WRONG. You do not have to be in a high deductible health insurance plan to be eligible for an MSA. And, unlike an HSA, you can be age 65 and over and still be eligible for an MSA. Others say they have never heard of a Montana MSA. Believe it or not these accounts have been around since 1997.

This income tax advantage using an Montana MSA does not apply to your federal income taxes and should not be confused with the Federal Health Savings Accounts (HSAs) or Federal Flexible Spending Plans (FSAs).

If you do not use any money deposited in your MSA during the year it was deposited, it remains in the account and earns interest that is free from Montana income taxation. The money in the MSA then can be used for eligible medical care expenses in future years.

If you have already paid your 2018 medical bills either by check, cash, or credit/debit card, you could add up those eligible expenses, make a deposit by Dec. 31 and reimburse yourself from the MSA account on the same day for eligible expenses paid January through December.

The key word is paid. You can reimburse yourself for paid eligible medical expenses by the end of 2018. But if you haven't yet paid those bills because your health insurance company hasn't sorted out what it will pay and what you still owe, you still can reimburse yourself for those unpaid eligible expenses during 2019 when you pay them.

The amount you can use to reduce your Montana income is the total deposited, not the amount used for medical expenses during the tax year. For example, if you deposited $3,500 in an MSA but only used $500 for eligible medical expenses during 2018, you still get to reduce your income by $3,500. The remaining $3,000 is available for paying medical expenses in future years.

You can use your MSA funds to pay medical expenses not only for yourself, but also your spouse, parents, dependents and anyone else. Let me repeat that last part…you can use your MSA fund to pay for eligible medical expenses of ANYONE…your best friend, a colleague who needs the money, anyone except your dog. Again, thank your legislators for this provision passed in 2017.

Your MSA can also be used as a legacy. Some Montanans have put money in their MSAs every year, but not used it because they are saving the funds for long term care expenses. Others plan to use their MSA as a legacy for their children and grandchildren. You can place a payable on death (POD) designation on your MSA, identifying who you want to receive the money after your death. Your spouse, parents and kids can then use the money for their own eligible medical expenses without Montana income tax consequences.

During this season of giving, parents and grandparents may want to gift money to their adult children and adult grandchildren for an MSA. Whatever amount is gifted and deposited in an MSA can be taken off the adult children and grandchildren’s income. The adult grandkids get the tax break, but not the grandparents.

An MSU Extension MontGuide will help you decide if you would benefit from a Montana medical care savings account. The publication (MontGuide 199817 HR) can be downloaded free http://msuextension.org/publications/FamilyFinancialManagement/MT199817HR.pdf

A copy can also be obtained from your local County or Reservation Extension office or by emailing [email protected].

Marsha A. Goetting is the MSU Extension Family Economics Specialist in Bozeman. She deposited $3,500 for her MSA in November and will withdraw over $1,000 for eligible medical expenses that weren’t coverage by her FSA or health insurance policy.