Part 7: The Overlooked Tax Tool: Archer MSAs — What They Are and Who Still Qualifies

The Overlooked Tax Tool: Archer MSAs — What They Are and Who Still Qualifies

Most taxpayers have never heard of an Archer MSA — and yet it was the original blueprint for today’s HSA.
Although MSAs are far less common and are limited to specific groups, the tax benefits are still powerful: tax-deductible contributions, tax-free growth, and tax-free withdrawals for medical expenses.

1️⃣ What Is an Archer MSA?

An Archer Medical Savings Account (MSA) is a tax-advantaged account created before HSAs existed.
It was designed for:

• Self-employed individuals, and
• Employees of small employers (typically ≤50 employees)

MSAs work similarly to HSAs, offering:

• Tax-deductible contributions
• Tax-free earnings
• Tax-free distributions for qualified medical expenses

Although HSAs have replaced MSAs for most taxpayers, MSAs are still valid and still maintained for eligible individuals.

2️⃣ Who Is Eligible for an MSA in 2025?

Archer MSAs are restricted to two groups:

• Self-employed individuals with a qualifying high-deductible MSA-compatible plan
• Employees of small employers (generally ≤50 workers) who offer an MSA-compatible high-deductible health plan

If your employer has more than 50 employees or offers an HSA instead, you generally cannot open an MSA.

3️⃣ Contribution Rules & Limits

Unlike HSAs — which allow large annual limits — MSA contributions follow older formulas based on a percentage of your annual deductible.

Contribution Limits:

• Self-only coverage: up to 65% of the annual deductible
• Family coverage: up to 75% of the annual deductible

Contributions may be made by:

• You (the account holder), or
• Your employer

But not both in the same year.

4️⃣ How MSA Withdrawals Work

MSA withdrawals follow nearly identical rules to HSA withdrawals:

• Tax-free if used for qualified medical expenses
• Taxable + 20% penalty if not used for medical expenses
• No penalty after age 65 (but income tax applies)

You must keep receipts for all reimbursed medical expenses.
Like HSAs, you may reimburse yourself immediately or years later if documentation is retained.

5️⃣ Tax Treatment: Contributions, Growth & Distributions

• Contributions made by you are above-the-line deductions.
• Employer contributions are excluded from income.
• Earnings grow tax-free in the account.
• Withdrawals for qualified medical expenses are tax-free.

6️⃣ MSA vs HSA — Key Similarities and Differences

💬 Frequently Asked Questions