Montana Medical Care Savings Account

Montana residents may establish a Montana Medical Care Savings Account (MSA) to reduce the cost of saving for medical expenses and long-term healthcare.

Benefit

A Montana resident taxpayer may exclude up to $4,500 from Montana taxable income for contributions made into an MSA owned by the taxpayer in 2024. For 2025, the maximum amount that a taxpayer can contribute to a MSA and exclude from Montana taxable income is $4,600.

Earnings on the account are not taxable if used to pay for eligible medical expenses.

Withdrawals

An account holder may withdraw funds tax-free at any time during the year if the funds are used for eligible medical expenses.

Eligible Medical Expenses

Eligible medical expenses include:

  • Eligible medical expenses of the account holder or anyone he or she chooses
  • Expenses for long-term care insurance or a long-term care annuity for the long-term care of the MSA account holder or anyone he or she chooses.
  • Family leave expenses
  • Expenses paid to administer the account (e.g. account service fees).
  • Direct patient care payments
  • Healthcare sharing ministry payments

A list of eligible medical expenses for a Montana MSA is available in IRS Publication 502, Medical and Dental Expenses.

Money held in a Montana MSA may not be used to pay any medical expenses that have already been reimbursed under some other type of pre-tax health savings account or other insurance coverage. In addition to traditional health insurance plans, this also includes other arrangements such as an automobile insurance policy, workers' compensation coverage, or a self-insured plan.

Family Leave Expenses

A family leave expense is an expense, calculated monthly, of approximate wages lost while caring for parents, spouse, or children for the purposes allowed under the Family Medical Leave Act of 1993.

Transfers

A transfer of the entire balance of a Montana MSA to another account you designate as your new Montana MSA or to a Montana MSA of an immediate family member (parent, spouse or child) is exempt from tax.

Immediate family members of a deceased taxpayer may inherit funds from the decedent's Montana MSA tax free if the funds are transferred to a Montana MSA held by the immediate family member.

Unqualified Withdrawals, Recapture Tax, and Penalties

Unqualified withdrawals are taxable and reported on the Form 2, Additions Schedule in the year they are withdrawn. They include withdrawals of funds used to pay for anything other than an eligible medical expense. Additionally, if you move from Montana to another state or country, any unused funds in your Montana MSA are considered an unqualified withdrawal.  

Unless withdrawn on the last business day in December, unqualified withdrawals are subject to a 10% penalty.

Resources and Related Laws