Montana Medical Care Savings Accounts

[zedd]

Of interest to viewers residing in Montana – both of them (just kidding).

THE MONTANA MEDICAL CARE SAVINGS ACCOUNT Act allows Montanans to save money for medical expenses and long-term health care and reduce their state income taxes at the same time.

The money deposited in an MSA is not subject to Montana income taxation while in the account or if used for eligible medical expenses for the account holder or his or her dependents. If an account holder does not use money deposited in his or her MSA during the year deposited, it remains in the account and earns interest that is free from Montana income taxation. The money in the MSA then can be used for eligible medical care expenses in future years. Any money used in the reduction of income in one year cannot be deducted from income in a future year.

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It works kind of like a federal Health Savings Account (HSA). Notable difference from an HSA is that the contributions are after-tax and serve to reduce only state income tax.

There is one sweet provision under planning technique:

Montana taxpayers who are not sure if they will have eligible medical expenses during the year can wait until the last business day in December to open an MSA.

Example 17: Matt kept documentation of his medical expenses that were not covered by his health insurance policy throughout the year and found they totaled $2,225. On the morning of December 30, he transferred $2,230 from his regular savings account to establish an MSA. The next day (the last business day of the year), he withdrew $2,225 from the MSA and placed the funds back into his regular savings account. Matt left $5 in the account because the financial institution had a close-out fee.
Matt can reduce his Montana income by the $2,230 he deposited into his MSA even though the money was in the account for less than 24 hours. With his Montana tax for the year he files the MSA annual reporting form with an entry of $2,230.

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Had I known about this last year I could have saved about $400 on my state tax bill. Of special benefit to me is that the MSA considers health insurance premiums as a eligible expense.

Residents of states with income tax might want to look into similar provisions in their home state.

Here's the link to the doc. Sorry that it's in pdf.
http://www.google.com/url?sa=t&rct=...O5ZDKDEijhJsNFiDMYd77Rg&bvm=bv.41248874,d.cGE

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[Mulligan]

I wish my state had this, as it would save me 6%. Being a conservative investor, I would just treat all these HSA's as my emergency funds and hang on to the receipts. My state does allow me to deduct my premiums, though. But my insurance premiums are so small because of high deductible, it doesn't contribute much.