Montana Medical Care Savings Accounts MontGuide HR Revised January

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) 2

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

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

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

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

Who is Eligible? Montana resident tax payers only 7

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

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

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

MSA Saves on Montana Income Taxes Contributions:  Reduce Montana income by amount deposited  T axes saved depend on tax bracket 11

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

Tax Brackets & Rates Montana At LeastBut less ThanThen your tax is: $0$2,8001% $2,800$5,0002% $5,000$7,6003% $7,600$10,3004% $10,300$13,3005% $13,300$17,1006% $17,100 or more6.9%

MT Tax Savings with MSA vs Regular Savings Account Deposit: $3, Taxable Income more than $17,100 (6.9% tax bracket) SavingsMSA Savings Deposit $3,000 Interest Rate: x.0005 Earnings $ 1.50 Savings Deposit $3,000 Tax Bracket: x.069 Tax Savings: $207

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

Barbara’s Montana Income Reduced by $3,000  Not $2,000 withdrawn 16 Adjusted income $ 42,000 MSA deposit - $3,000 Taxable Income $ 39,000

Reduced Income for Tax Purposes Total deposited in MSA  Not amount withdrawn for medical expenses 17

Interest earnings Not subject to Montana income taxation if:  Left in the account  Withdrawn for eligible medical care expenses 18

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

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

Eligible MSA Expenses Prescribed drugs Insulin Dental care 21

Eligible MSA Expenses Eyeglasses Crutches Hearing Aids Nursing Home Care 22

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

Medicare Parts B & D Eligible medical expenses 24

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

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

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

Who can administer my MSA? You can  Self-administered account  Almost all MSAs are self- administered Someone you pay  Registered Account Administrator 28

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 29

Example: Duane Withdraws $6,000 to buy car in July 2014 Adjusted Income$ 40,000 MSA Withdrawal+ 6,000 Taxable Income $ 46,000 30

Example: Duane non-eligible withdrawal Increased Taxes ($ 6,000 x 6.9% ) $ % Penalty Total Cost of Withdrawal: $1,014 31

No 10% Penalty 1.If non-eligible withdrawal made on last business weekday of December Amount included as income, however 32

No 10% Penalty 2. Withdrawal due to death of account holder Amount included in decedent’s income in year died, unless POD spouse or lineal descendant 33

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

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

Withdrawals (not for eligible medical care expenses)  Reported  MSA Form Rev Reporting 10% Penalty 36

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

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

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

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

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

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

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

Forms Department of Revenue 44

MSA Reporting Requirements File Form:  Annual Reporting Form for Self Administered Individual Accounts  Department of Revenue 45

Enter Amount On Montana Individual Income Tax Return Form 2  Schedule II: Line 18 Form 2M  Line 32 46

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

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

Percent of Montanans with MSAs Only 1.4% Why? 49

Montana Medical Care Savings Accounts MontGuide HR Revised January