26 U.S.C. § 138 — Medicare Advantage MSA

(a) Exclusion. When the Secretary of Health and Human Services pays money into an individual's Medicare Advantage MSA, under part C of Medicare, that payment doesn't count as the individual's taxable income. (b) What a "Medicare Advantage MSA" is. It's an Archer MSA (as section 220(d) defines that term) that meets four conditions: (1) it's designated as a Medicare Advantage MSA; (2) no money goes into it except (A) payments from the Secretary of Health and Human Services under part C of Medicare, or (B) trustee-to-trustee transfers described in subsection (c)(4); (3) the account's governing document allows those trustee-to-trustee transfers in and out; and (4) it's set up along with an MSA plan described in section 1859(b)(3) of the Social Security Act. (c) Special rules for taking money out. (1) When section 220 is applied to a Medicare Advantage MSA, "qualified medical expenses" don't include money spent on medical care for anyone besides the account holder, and one specific rule — section 220(d)(2)(C) — doesn't apply. (2) Penalty if money is withdrawn for non-medical purposes and the account balance drops too low. (A) In general. If, in a taxable year, money comes out of a Medicare Advantage MSA and isn't used entirely for the account holder's qualified medical expenses, the tax owed for that year goes up by 50% of a specific excess amount. That excess is: the amount withdrawn, minus any amount by which the account's fair market value (as of the end of the prior calendar year) was more than 60% of the deductible under the account holder's Medicare Advantage MSA plan (as of January 1 of the year the tax year begins). A related rule, section 220(f)(4), does not apply to withdrawals from a Medicare Advantage MSA. (B) Exceptions. This 50% penalty doesn't apply to withdrawals made on or after the date the account holder becomes disabled (as section 72(m)(7) defines that) or dies. (C) Special rules for figuring the penalty: all of an account holder's Medicare Advantage MSAs are treated as one account; all non-medical withdrawals during a taxable year are treated as one withdrawal; and any property withdrawn is valued at its fair market value on the date it's withdrawn. (3) Withdrawing a mistaken contribution. The penalty rules above, and one rule in section 220(f)(2), don't apply when a mistaken contribution — plus any income it earned — is paid back to the Secretary of Health and Human Services. (4) Trustee-to-trustee transfers. Those same rules don't apply to a transfer directly from one of an account holder's Medicare Advantage MSAs to another Medicare Advantage MSA belonging to that same account holder. (d) What happens to the account after the account holder dies. When applying the usual after-death rules in section 220(f)(8)(A) to a Medicare Advantage MSA, the surviving spouse who becomes the new account holder follows the general rules in section 220(f), not the special rules in subsection (c) of this section. (e) Reports. For a Medicare Advantage MSA, the yearly report required under section 220(h) must (1) include the account's fair market value as of the end of each calendar year, and (2) be sent to the account holder by January 31 of the following year, in whatever manner the Secretary of the Treasury requires by regulation. (f) Coordination with the cap on how many people can have Archer MSAs. The general limit on the number of taxpayers allowed to have Archer MSAs, under section 220(i), doesn't apply to someone with a Medicare Advantage MSA, and Medicare Advantage MSAs aren't counted when checking whether the numerical limits in section 220(j) have been exceeded.