§138 Medicare Advantage Msa

Summary

Payments the federal government (Health and Human Services) puts into a Medicare Advantage MSA are not taxable income. A Medicare Advantage MSA is a special type of Archer MSA set up for a Medicare Advantage plan. Only the government can put money in it except for transfers between the holder’s such MSAs, and the plan’s paperwork must allow those trustee-to-trustee transfers. Only the account holder’s medical costs count as allowed expenses. If money is taken out and not used only for the holder’s qualified medical care, a tax penalty applies: the tax is increased by 50 percent of the amount by which the withdrawal exceeds a limit based on the account’s year‑end fair market value and 60 percent of the plan deductible (the deductible amount is measured as of January 1 of the year). The penalty does not apply if the holder becomes disabled (as defined in section 72(m)(7)) or dies. All of a person’s Medicare Advantage MSAs are treated as one account for these rules, and all nonqualified withdrawals in a year are treated as one distribution. Returning an erroneous contribution (and its income) to HHS and moving money trustee-to-trustee between the holder’s Medicare Advantage MSAs do not trigger the penalty. After the holder dies, the surviving spouse follows the rules in section 220(f). Each year the account’s year‑end fair market value must be reported to the holder by January 31 in the form the Secretary requires. These MSAs don’t count toward limits on how many Archer MSAs a person can have.