Savings Accounts for Health Care Expenses

There are four different plans (with different qualifying criteria) which can be set up to save for future medical expenses. In the paragraphs below, the different plans are named, followed by a brief description of each plan. For complete information, refer to IRS Pub 969.


Medical Savings Accounts (MSAs) (Click the link for the Wikipedia article)

Legislation creating MSAs (aka Archer MSAs) was passed in 1996. An MSA is a tax-exempt trust or custodial account that is set up with a U.S. financial institution (such as a bank or an insurance company) in which you can save money exclusively for future medical expenses. (ref Form 8853)

MSAs were intended to be used by self-employed individuals and small businesses with fewer than 50 employees. This program ended December 31, 2007.


Health Savings Accounts (HSAs) (Click the link for the Wikipedia article)

Legislation creating HSAs was passed in 2003, and effectively replaced MSAs. HSAs are a tax-exempt trust or custodial account set up with a qualified HSA trustee to pay or reimburse certain medical expenses you incur. (ref Form 8889)

HSAs can be used by employers of all sizes.


Flexible Spending Accounts (FSAs) (Click the link for the Wikipedia article)

An FSA allows an employee to set aside a portion of earnings to pay for qualified expenses as established in the cafeteria plan, most commonly for medical expenses but often for dependent care or other expenses.


Health Reimbursement Account (Click the link for the Wikipedia article)

HRAs are funded solely by an employer. Employees are reimbursed tax free for qualified medical expenses up to a maximum dollar amount for a coverage period. An HRA may be offered with other health plans, including FSAs.