§138 Medicare Advantage MSA

Summary

Payments from the Secretary of Health and Human Services into a Medicare Advantage MSA do not count as the account holder’s gross income. Withdrawals from the account must be used only for the account holder’s qualified medical costs. If money is taken out and not used only for those costs, an extra tax applies equal to 50% of the part of the withdrawal that is above a limit. That limit is the account’s fair market value at the end of the prior calendar year minus 60% of the plan’s deductible as of January 1 of the tax year (if that difference is negative, the limit is zero). The extra tax does not apply to withdrawals made after the account holder becomes disabled or dies. Withdrawals that are returns of mistaken payments to the Secretary, and trustee-to-trustee transfers between the account holder’s Medicare Advantage MSAs, are also not subject to the extra tax. All of an account holder’s Medicare Advantage MSAs are treated as one account for these rules, distributions in a year are combined, and property distributions are valued at fair market value when given. Account trustees must report each year’s year-end fair market value to the account holder by January 31 in the form the Secretary requires. The special MSA rules in section 220(i) do not apply to these accounts, and they are not counted toward the numeric limits in section 220(j). Defined term: Medicare Advantage MSA: an Archer MSA that is labeled a Medicare Advantage MSA, only accepts contributions from the Secretary of Health and Human Services or trustee-to-trustee transfers, allows such transfers in its governing rules, and is set up with an MSA plan described in Social Security Act section 1859(b)(3).