Medicare Advantage MSA Income Exclusion

§ 138. Medicare Advantage MSA(a) ExclusionGross income shall not include any payment to the Medicare Advantage MSA of an individual by the Secretary of Health and Human Services under part C of title XVIII of the Social Security Act. (b) Medicare Advantage MSAFor purposes of this section, the term “Medicare Advantage MSA” means an Archer MSA (as defined in section 220(d))—(1) which is designated as a Medicare Advantage MSA, (2) with respect to which no contribution may be made other than—(A) a contribution made by the Secretary of Health and Human Services pursuant to part C of title XVIII of the Social Security Act, or (B) a trustee-to-trustee transfer described in subsection (c)(4), (3) the governing instrument of which provides that trustee-to-trustee transfers described in subsection (c)(4) may be made to and from such account, and (4) which is established in connection with an MSA plan described in section 1859(b)(3) of the Social Security Act. (c) Special rules for distributions(1) Distributions for qualified medical expensesIn applying section 220 to a Medicare Advantage MSA—(A) qualified medical expenses shall not include amounts paid for medical care for any individual other than the account holder, and (B) section 220(d)(2)(C) shall not apply. (2) Penalty for distributions from Medicare Advantage MSA not used for qualified medical expenses if minimum balance not maintained(A) In generalThe tax imposed by this chapter for any taxable year in which there is a payment or distribution from a Medicare Advantage MSA which is not used exclusively to pay the qualified medical expenses of the account holder shall be increased by 50 percent of the excess (if any) of—(i) the amount of such payment or distribution, over (ii) the excess (if any) of—(I) the fair market value of the assets in such MSA as of the close of the calendar year preceding the calendar year in which the taxable year begins, over (II) an amount equal to 60 percent of the deductible under the Medicare Advantage MSA plan covering the account holder as of January 1 of the calendar year in which the taxable year begins. Section 220(f)(4) shall not apply to any payment or distribution from a Medicare Advantage MSA. (B) ExceptionsSubparagraph (A) shall not apply if the payment or distribution is made on or after the date the account holder—(i) becomes disabled within the meaning of section 72(m)(7), or (ii) dies. (C) Special rulesFor purposes of subparagraph (A)—(i) all Medicare Advantage MSAs of the account holder shall be treated as 1 account, (ii) all payments and distributions not used exclusively to pay the qualified medical expenses of the account holder during any taxable year shall be treated as 1 distribution, and (iii) any distribution of property shall be taken into account at its fair market value on the date of the distribution.