Archer MSA Pilot Program Continues

The Internal Revenue Service has announced plans to continue the Archer Medical Savings Account (MSA) pilot program beyond the planned cut-off date of October 1, 2002. Originally the IRS indicated it would only allow 750,000 MSAs to be created under the pilot program. Only 21,079 MSA returns were filed for 2001, and the number of MSA returns expected to be filed for 2002 is 59,151.

Taxpayers with MSA accounts enjoy tax treatment similar to Individual Retirement Arrangements (IRAs) for their medical accounts. These taxpayers make tax-deductible contributions to their medical accounts, and the contributions remain tax-free if used for qualified medical purposes. Earnings in the account are also tax-free. Rollover provisions enable users to keep money in their MSA accounts after year end rather than forcing a use-it-or-lose-it condition.

MSA participants must be covered by a health insurance plan that features a high deductible. Money from the MSA is then used to pay the medical expenses not covered by the participant's insurance plan.

Had the cut-off date been enforced, no new MSA accounts would be eligible for the tax benefits that accompany the program.

Because the number of active MSAs does not exceed 750,000, October 1, 2002 will not be a cut-off date, nor will 2002 be a cut-off year according to IRS Announcement 2002-90.

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