An Archer medical savings account (MSA) is a tax-exempt trust or custodial account in which you save money exclusively for future medical expenses. It must be established with a U.S. financial institution.

Contributions to your Archer MSA qualify for a deduction on your tax return, even if you do not itemize deductions.

Contributions and distributions are reported on Form 8853 and attached to your Form 1040.

• You can claim a tax deduction on your 1040, even if you do not itemize deductions.
• Interest and other earnings on the assets in the account are tax-free.
• Distributions are tax-free if used to pay qualified medical expenses.
• Contributions remain in your account year after year until you use them.
• Archer MSA accounts stay with you, even if you change employers or leave the work force.

• You must have a high deductible health plan (HDHP).
• You must have no other health or Medicare coverage.
• You must be either of the following:
  
  • A self-employed person, or the spouse of a self-employed person, who maintains an individual or family HDHP
  • Employed by a small employer who maintains an individual or family or HDHP  for you or your spouse

• Annual deductible limit:
  • You or your employer can contribute up to 65% (75% if family coverage) of the annual deductible of your HDHP.
• Income limit:
  • You cannot contribute more than you earned for the entire year from the employer maintaining the HDHP.
  • If you are self-employed you cannot contribute more than your net self-employment income.

The deduction is limited based on whether the coverage is for an individual or a family.

• Minimum annual deductible must be at least $1,800.
• Maximum annual deductible must be at least $2,700.
• Maximum out of pocket expenses must be at least $3,650.

• Maximum annual deductible must be at least $3,650.
• Maximum annual deductible must be at least $5,450.
• Maximum out of pocket expenses must be at least $6,650.

Qualified medical expenses are the same expenses that qualify for the Medical and Dental Deduction  and are incurred by:

• You or your spouse
• All dependents whom you are claiming
• Any person you could have claimed as a dependent except that:
  • The person filed a joint return.
  • The person had more than $3,300 in gross income.
  • You could be claimed by someone else.

You cannot deduct qualified medical expenses as an itemized deduction if the expenses are paid with a tax-free distribution from your Archer MSA.

For more information, see IRS Publication 969.