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self-employed health deduction vs. HSA vs. MSA

So I've spent a significant chunk of time googling this, and I'm still confused. As I understand it, a self-employed person cannot contribute pre-tax dollars to an HSA:

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But we /can/ deduct the cost of our high-deductible health plan premiums, just as we normally do. So for someone who's paying, say, $300/month for a low-deductible plan, and is considering a $200/month $1500 high-deductible plan + HSA: old = pay only SE tax on $3600 new = pay only SE tax on $2400, but full fed tax on $1500 HSA contribution

Using roughly 15% for SE, we've got:

old = $540 tax savings, $3600 in premiums new = $360 tax savings, $2400 in premiums

Meaning about $1020 left to spend on getting sick, before it becomes a bad idea. Does that sound right? Bonus Question: I've got an Archer MSA from back in Ye Olde Days. I was going to close it out, as I currently don't have a high-deductible plan (I'm in New York, where the high-deductible plans don't seem to be such a great bargain.) My questions: are there any substantive differences between MSA's and HSA's? Is it true that no new MSA's may be written after 2003, or were they made permanent? Is there any reason to keep my MSA, rather than shutting it down & just getting an HSA in the future if I choose? mitch

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Reply to
meeotch
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A few random thoughts.

First, watch out for state taxes. I live in California, and got bitten by the state's decision not to conform with the federal rules for HSAs. They basically don't recognize the existence of HSAs for the purpose of state income tax. I rolled over my MSA into an HSA: big mistake because the state penalized me for using the MSA for what they considered to be a non-medical purpose. To "close out" an MSA, I'd suggest draining it by paying medical bills, for as long as it takes. If you just withdraw the funds you may end up being penalized by both the feds and the state. There are qualifications (like employment/insurance status) for putting funds into an MSA, but once they're in there are no penalties for spending the funds on medical expenses. While the MSA is draining, you can start an HSA too. Disclaimer: I'm not a tax pro, just somebody who has had an MSA and an HSA.

Reply to
MyVeryOwnSelf

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Can't the HSA contribution be taken as an adjustment on line

25 (1040)? If not, I'm in trouble. George

Reply to
George

Yes, according to form 8889, line 11.

Reply to
MyVeryOwnSelf

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"Self-employed pre-tax dollars"???? What? Only employees can have pre-tax dollars....

An existing MSA may continue to exist in its current form, but no new accounts may be opened.

Reply to
D. Stussy

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