1. Montana Medical Care Savings Accounts MontGuide 199817 HR Revised January 2015 1

2. What is an MSA? An account that can be used for paying eligible medical expenses that are not covered by:  Health insurance policy  Flexible spending plan (FSA) 2

3. Where to establish MSA accounts? Bank Savings Bank Credit Union 3

4. Where to establish MSA accounts? Trust company Mutual fund company Brokerage firm 4

5. Caution Minimum Balance?  May range from $20 to $1,000 Fees? For m onthly withdrawals that exceed a certain amount 5

6. MSA Rules Must be separate from other accounts Joint accounts for MSAs not allowed 6

7. Who is Eligible? Montana resident tax payers only 7

8. Minor Child Cannot establish MSA for:  Minor child under age 18 8

9. Parents’ MSAs May be used for minor child’s eligible medical expenses 9

10. MSA Deduction $3,000 for each taxpayer $6,000 married couple  Separate Accounts  Can use funds for one another 10

11. MSA Saves on Montana Income Taxes Contributions:  Reduce Montana income by amount deposited  T axes saved depend on tax bracket 11

12. Montana Taxable Income Adjusted income $ 49,000 MSA deposit - $ 3,000 Taxable Income $46,000 12

13. Tax Brackets & Rates Montana- 2014 13 At LeastBut less ThanThen your tax is: $0$2,8001% $2,800$5,0002% $5,000$7,6003% $7,600$10,3004% $10,300$13,3005% $13,300$17,1006% $17,100 or more6.9% www.revenue.mt.gov

14. MT Tax Savings with MSA vs Regular Savings Account Deposit: $3,000 14 Taxable Income more than $17,100 (6.9% tax bracket) SavingsMSA Savings Deposit $3,000 Interest Rate: x.0005 Earnings $ 1.50 Savings Deposit $3,000 Tax Bracket: x.069 Tax Savings: $207

15. Example: Barbara January 31  $3,000 deposited in MSA  Had $2,000 eligible medical expenses during year 15

16. Barbara’s Montana Income Reduced by $3,000  Not $2,000 withdrawn 16 Adjusted income $ 42,000 MSA deposit - $3,000 Taxable Income $ 39,000

17. Reduced Income for Tax Purposes Total deposited in MSA  Not amount withdrawn for medical expenses 17

18. Interest earnings Not subject to Montana income taxation if:  Left in the account  Withdrawn for eligible medical care expenses 18

19. What are eligible medical expenses? Montana accepts any health care expense allowed as a deduction on federal income tax return as “eligible” IRS Publication 502 19

20. Eligible MSA Expenses Health insurance premiums Long-term care insurance or annuity 20

21. Eligible MSA Expenses Prescribed drugs Insulin Dental care 21

22. Eligible MSA Expenses Eyeglasses Crutches Hearing Aids Nursing Home Care 22

23. Medicare Part A Not an eligible medical expense  Covered by Social Security 23

24. Medicare Parts B & D Eligible medical expenses 24

25. Not Eligible Any medical expenses that are or have been reimbursed by some other type of insurance:  Health policy  Automobile policy  Workers Compensation 25

26. Double dipping not allowed Can’t claim twice for same expense:  If claimed for FSA or HSA can’t claim for MSA 26

27. Who are Eligible Dependents? Spouse Child  Age 19 & under  Age 23 & under  (if in college) 27

28. Who can administer my MSA? You can  Self-administered account  Almost all MSAs are self- administered Someone you pay  Registered Account Administrator 28

29. What if I need money for non-eligible expenses? Considered non-eligible withdrawal:  Subject to 10% penalty  Withdrawal counted as income in Montana  Unless withdrawn on last business day of the year 29

30. Example: Duane Withdraws $6,000 to buy car in July 2014 Adjusted Income$ 40,000 MSA Withdrawal+ 6,000 Taxable Income $ 46,000 30

31. Example: Duane non-eligible withdrawal Increased Taxes ($ 6,000 x 6.9% ) $ 414 10% Penalty + 600 Total Cost of Withdrawal: $1,014 31

32. No 10% Penalty 1.If non-eligible withdrawal made on last business weekday of December Amount included as income, however 32

33. No 10% Penalty 2. Withdrawal due to death of account holder Amount included in decedent’s income in year died, unless POD spouse or lineal descendant 33

34. 3. Direct transfer to another MSA with different financial institution Caution, wire transfer fees $25 to each institution No 10% Penalty 34

35. 4.Direct transfer from one type of savings account to another within the financial institution:  Example: MSA savings account to MSA CD No 10% Penalty 35

36. Withdrawals (not for eligible medical care expenses)  Reported  MSA Form Rev. 04 14 Reporting 10% Penalty 36

37. Withdrawal for medical expenses paid in prior year  Must be made by January 15 Dept of Revenue Rule 37

38. What happens to my MSA when I die? Balance passes by:  POD Beneficiary Designation  Written Will  Montana Intestacy Statutes  Dying Without a Will 38

39. Income tax savings to Beneficiaries POD to Spouse & Lineal Descendants  Money can pass to their MSAs without being subject to Montana income taxation 39

40. What if I become incapacitated? Funds can be withdrawn by:  Person holding Power of Attorney (agent)  Person named as Conservator by district court 40

41. What happens if I move to another state? Unused MSA Funds  Counted as Income on final Montana Income Tax Return 41

42. Planning Technique Track medical expenses January - December Deposit from savings to MSA the amount of eligible medical care expenses for the year 42

43. Planning Technique Withdraw from MSA total amount needed for eligible medical care expenses during year  One withdrawal Deposit back to savings 43

44. Forms Department of Revenue www.revenue.mt.gov 44

45. MSA Reporting Requirements File Form:  Annual Reporting Form for Self Administered Individual Accounts  Department of Revenue www.revenue.mt.gov 45

46. Enter Amount On Montana Individual Income Tax Return Form 2  Schedule II: Line 18 Form 2M  Line 32 46

47. Form-MSA Simple to fill out: Name Social Security Number Name & Address of Financial Institution MSA account number 47

48. 1.Current year deposits No more than $3,000 2.Deposits from prior years not counted 3.Add lines 1 & 2 4.Add interest and other income 5.Add lines 4 & 5 48 Form MSA: Summary

49. Percent of Montanans with MSAs Only 1.4% Why? 49

50. Montana Medical Care Savings Accounts MontGuide 199817 HR Revised January 2015 50