The difference between MSAs and HSAs

Is an HSA the equivalent of an IRA?

You often hear health savings accounts described as a “medical IRA”, where IRA is an individual retirement account as defined by the IRS. While there are some similarities, it is not a direct analogy.

IRAs have become very popular over the past few decades, and a large portion of the population understands them. They are offered through banks, investment companies, brokerages, and other places. You can sometimes deduct IRA contribution from your income when preparing tax returns, and with the Roth IRA, money in the account grows tax free. When you withdraw money from the Roth IRA after you retire, you don’t have to pay taxes on it. When you withdraw money from a traditional IRA after you retire, you do pay taxes on it.

The money contributed to an HSA, as well as any increase in the value of the account, is “tax deferred”, meaning its like a traditional IRA in that you can deduct your contributions from your taxes and later, when you withdraw the money, pay tax on it at that time.

Medical savings accounts (MSAs) were authorized by Congress in 1996 and began operation in 1997. HSAs were authorized by Congress in 2003 and began operation in 2004. HSAs are in some ways an expansion of the MSA program, with the key difference being that HSAs are permanent and portable: they are attached to the individual and when the person takes another job, the HSA goes with him or her.

Further, while there were a limited number of MSAs that could be created in the country, HSAs are open to everyone with a qualified high-deductible health insurance policy. There is no limit to the type of employment arrangement: corporations, sole proprietorships, individuals, etc. can all be part of HSAs. The amount of money that can be contributed is also higher.

For all practical purposes, HSAs are replacing MSAs. That was the intent of the legislators who created them.
Consumer-Driven Health Plans

State taxes and HSAs


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