Plain version: the Archer medical savings account is the HSA's older cousin: a high deductible plan plus a tax-favored account. It was created for self-employed individuals and employees of small employers. For this purpose a small employer is generally one that averaged 50 or fewer employees during either of the last 2 calendar years.
New Archer MSAs are rare today. After 2007, a person generally cannot be an eligible individual unless he or she was an active participant for a tax year ending before 2008, or becomes one through the high deductible plan of an Archer MSA participating employer. That is why most new buyers use HSAs instead.
Contribution rules:
- The individual or the individual's employer may contribute, but not both in the same year.
- Contributions must be in cash.
- The individual's own contributions are deductible whether or not the individual itemizes.
- The limit is 65% of the high deductible plan's annual deductible for self-only coverage, or 75% for family coverage, and it is also capped by earned income.
Example: self-only coverage with a $4,000 deductible allows up to 65% × $4,000 = $2,600.
Taking money out:
The part of a distribution not used for qualified medical expenses bears a 20% federal additional tax. California follows that rule but substitutes 12.5% for 20% (Rev. & Tax. Code §17215(b)).
A distribution rolled over into another Archer MSA or an HSA within 60 days is generally not taxable, and the receiving account can take only one rollover in a 1-year period.
The account is portable: changing employers does not force a withdrawal.
Medicare Advantage MSA: a separate product for people enrolled in Medicare. Only Medicare can contribute. Medicare gives the plan an amount each year, and the plan deposits it in the account at the start of the calendar year. The enrollee cannot add his or her own money, and the Archer 65%/75% limits do not apply.