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MEDICAL SAVINGS ACCOUNTS MSA’s For purposes of the comparability requirement, contributions on behalf of part-time employees (those customarily employed for fewer than 30 hours per week) are tested separately. IRC § 4980E(d)(4). PERMISSABLE ACCOUNT BENEFITS Reimbursement of qualified medical expenses (as defined in § 213(d) of the IRC) (including OTC drugs) pertaining to the account holder, spouse, or any qualifying dependents, but only to the extent that such amounts are not compensated for by insurance or otherwise. IRC § 220(d) (2) (A). Funds from an Archer MSA may not be used to purchase health insurance, except if used to purchase continuation coverage (i.e., COBRA), qualified long-term care insurance, or health insurance while unemployed. IRC § 220(d) (2) (B). Other distributions are permitted, subject to tax and penalties. COORDINATION WITH OTHER ACCOUNTS AND ARRANGEMENTS Funds from an Archer MSA may be rolled over into an HSA. IRC § 220(f)(5). Although a HD plan may be part of an IRC § 125 cafeteria plan under which a health FSA is offered, an Archer MSA must be administered separate from an IRC§ 125 cafeteria plan. Notice 96-53, Q & A 8, 1996-2 CB 219. Comments: The impact of maintaining an HRA or FSA in connection with an Archer MSA is unclear. TAX TREATMENTS OF DISTRIBUTIONS Distributions for qualified medical expenses are generally not taxable. IRC § 220(f)(1). Any amount paid or distributed out of an Archer MSA which is not used exclusively to pay the qualified medical expenses of the account holder is includable in the gross income of such holder. IRC §220(f)(2). In addition, such amounts are subject to a 15% penalty. IRC § 220(f)(4). Penalty Exceptions: IRC § 220(f)(4) includes an exception but only for the penalty) to the above exclusivity requirements for distributions made after an individual dies or becomes disabled, IRC § 220(f)(4)(B), or reaches the Medicare eligibility age (age 65). IRC § 220(f)(4)(C). Rollovers: Amounts that would otherwise be taxable distributions are not taxable if rolled over into another MSA or HSA within 60 days, with certain exceptions. IRC § 220(f)(5). | ||
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