MSU Extension reminds Montanans about medical care savings accounts

BOZEMAN — Montanans can open a Medical Care Savings Account or make deposits into existing MSAs before Dec. 31 to reduce their state income taxes for 2023, according to Marsha Goetting, MSU Extension family economics specialist.

MSA account holders may deposit up to $4,500 to use for eligible medical and long-term health care expenses. The Montana Legislature has extended the Montana Medical Care Savings Account Act into 2024.

A person with taxable income over $19,800 could save approximately $304 in state income taxes by opening an MSA and depositing up to $4,500 for tax year 2023, Goetting said. Interest earned on the MSA is not subject to Montana income tax, and the balance at the end of the year rolls over for future use.

Goetting added that an MSA can be passed to others when an account owner dies. By placing a payable-on-death designation on the account, individuals can leave those funds for spouses, children or grandchildren to use for medical expenses. MSAs are not subject to inheritance or federal estate tax if an individual’s estate is valued at less than $12.92 million in 2023.

If a person dies without designating a payable on death, or POD, beneficiary, the money in an MSA will pass to heirs designated in a written will, Goetting said.

“If you do not have a written will, the MSA passes by Montana law to your heirs with priority given to a spouse,” Goetting added. “Either way, you create a legacy. If you do not have beneficiaries, you could name your favorite nonprofit as the POD beneficiary.” 

The amount used to reduce income tax for Montana residents is the total amount deposited in an MSA during the tax year, not the amount withdrawn for eligible medical care expenses between January and December. 

Eligible expenses include any items accepted by the IRS, including medical insurance premiums, prescription drugs, medical and dental services, nursing home care, eyeglasses, crutches and transportation for medical care. IRS Publication 502 provides a detailed list of eligible expenses and can be found at irs.gov/publications/p502. 

All resident taxpayers 18 and older are eligible to set up an MSA with a financial institution even if they have a similar plan, like a Section 125 Flexible Spending Account or a Federal Health Savings Account, provided by their employers. A taxpayer is not required to be covered by a high-deductible health insurance plan to be eligible for the MSA.

A written guide, “Montana Medical Care Savings Accounts (MSAs) for the 2022-2023 Tax Year,” is available at store.msuextension.org/publications/FamilyFinancialManagement/MT199817HR.pdf. Paper copies are available from county or reservation Extension offices.