Montana Medical Care Savings Accounts

1. Montana Medical Care Savings Accounts MontGuide 199817 HR Revised December 2013

2. What is an MSA? An account that can be used for paying eligible medical expenses that are not covered by: Health insurance policy Flexible spending plan (FSA)

3. Where to establish MSA accounts? Bank Savings Bank Credit Union

4. Where to establish MSA accounts? Trust company Mutual fund company Brokerage firm

5. Caution Minimum Balance? May range from $20 to $1,000 Fees? For monthly withdrawals that exceed a certain amount

6. MSA Rules • Must be separate from other accounts • Joint accounts for MSAs not allowed

7. Who is Eligible? • Montana resident tax payers only

8. Minor Child • Cannot establish MSA for: • Minor child under age 18

9. Parents’ MSAs • May be used for minor child’s eligible medical expenses

10. MSA Deduction • $3,000 for each taxpayer • $6,000 married couple • Separate Accounts • Can use funds for one another

11. MSA Saves on Montana Income Taxes • Contributions: • Reduce Montana income by amount deposited • Taxes saved depend on tax bracket

12. Montana Taxable Income Adjusted income $ 49,000 MSA deposit - $ 3,000 Taxable Income $46,000

13. Tax Brackets & Rates Montana- 2013 www.revenue.mt.gov

14. MT Tax Savings with MSA vs Regular Savings AccountDeposit: $3,000 Taxable Income more than $16,700 (6.9% tax bracket)

15. Example: Barbara • January 31 • $3,000 deposited in MSA • Had $2,000 eligible medical expenses during year

16. Barbara’s Montana Income • Reduced by $3,000 • Not $2,000 withdrawn Adjusted income $ 42,000 MSA deposit - $3,000 Taxable Income $ 39,000

17. Reduced Income for Tax Purposes • Total deposited in MSA • Not amount withdrawn for medical expenses

18. Interest earnings • Not subject to Montana income taxation if: • Left in the account • Withdrawn for eligible medical care expenses

19. What are eligible medical expenses? • Montana accepts any health care expense allowed as a deduction on federal income tax return as “eligible” • IRS Publication 502

20. Eligible MSA Expenses • Health insurance premiums • Long-term care insurance or annuity

21. Eligible MSA Expenses • Prescribed drugs • Insulin • Dental care

22. Eligible MSA Expenses • Eyeglasses • Crutches • Hearing Aids • Nursing Home Care

23. Medicare Part A • Not an eligible medical expense • Covered by Social Security

24. Medicare Parts B & D • Eligible medical expenses

25. Not Eligible • Any medical expenses that are or have been reimbursed by some other type of insurance: • Health policy • Automobile policy • Workers Compensation

26. Double dipping not allowed Can’t claim twice for same expense: • If claimed for FSA or HSA can’t claim for MSA

27. Who are Eligible Dependents? • Spouse • Child • Age 19 & under • Age 23 & under • (if in college)

28. Who can administer my MSA? You can Self-administered account AlmostallMSAs are self-administered Someone you pay Registered Account Administrator

29. What if I need money for non-eligible expenses? • Considered non-eligible withdrawal: • Subject to 10% penalty • Withdrawal counted as income in Montana • Unless withdrawn on last business day of the year

30. Example: Duane • Withdraws $6,000 to buy car in July 2013Adjusted Income $ 40,000 MSA Withdrawal+ 6,000 Taxable Income $ 46,000

31. Example: Duanenon-eligible withdrawal Increased Taxes ($6,000 x 6.9%)$ 414 10% Penalty + 600 Total Cost of Withdrawal: $1,014

32. No 10% Penalty • If non-eligible withdrawal made on last business weekday of December • Amount included as income, however

33. No 10% Penalty • Withdrawal due to death of account holder • Amount included in decedent’s income in year died, unless POD spouse or lineal descendant

34. No 10% Penalty • Direct transfer to another MSA with different financial institution • Caution, wire transfer fees $25 to each institution

35. No 10% Penalty • Direct transfer from one type of savings account to another within the financial institution: • Example: MSA savings accountto MSA CD

36. Withdrawals (not for eligible medical care expenses) Reported MSA Form Rev. 02 12 Reporting 10% Penalty 36

37. Dept of Revenue Rule • Withdrawal for medical expenses paid in prior year • Must be made by January 15

38. What happens to my MSA when I die? • Balance passes by: • POD Beneficiary Designation • Written Will • Montana Intestacy Statutes • Dying Without a Will

39. Income tax savings to Beneficiaries POD to Spouse & LinealDescendants Money can pass to their MSAs without being subject to Montana income taxation

40. What if I become incapacitated? • Funds can be withdrawn by: • Person holding Power of Attorney (agent) • Person named as Conservator by district court

41. What happens if I move to another state? • Unused MSA Funds • Counted as Income on final Montana Income Tax Return

42. Planning Technique • Track medical expenses January - December • Deposit from savings to MSA the amount of eligible medical care expenses for the year

43. Planning Technique • Withdraw from MSA total amount needed for eligible medical care expenses during year • One withdrawal • Deposit back to savings

44. Forms Department of Revenue www.revenue.mt.gov

45. MSA Reporting Requirements File Form: Annual Reporting Form for Self Administered Individual Accounts Department of Revenue www.revenue.mt.gov

46. Enter Amount OnMontana Individual Income Tax Return Form 2 Schedule II: Line 18 Form 2M Line 32

47. Form-MSA Simple to fill out: Name Social Security Number Name & Address of Financial Institution MSA account number

48. Form MSA: Summary Current year deposits No more than $3,000 Deposits from prior years not counted Add lines 1 & 2 Add interest and other income Add lines 4 & 5

49. Percent of Montanans with MSAs Only 1.4% Why?

50. Montana Medical Care Savings Accounts MontGuide 199817 HR Revised December 2013