HSAs: Did MSAs survive? If yes, better to set-up MSA now and continue as MSA or better to use HSA? Also, does S Corp status affect HSAs or MSAs?

[Guest Benefits Brewster]

1. Did MSAs survive?

2. If yes, better to be MSA (grandfather now if necessary?) or HSA?

3. If you're an S Corp, is answer affected?

[Guest BenefitsLawyer]

Unless Congress acts to extend the MSA creation deadline, 12/31/03 is the end. MSAs that were created before that date may continue to exist, but no new ones may be created after that date.

On whether it's better to set up an MSA now or do an HSA next year, it depends. An HSA can be done through a cafeteria plan, which increases the tax savings, but you have to be an employee in order to use a cafeteria plan. (IRS hasn't yet provided guidance on whether funding an HSA through a cafeteria plan will subject the HSA to all of the cafeteria plan rules.)

But, amounts in an MSA can be rolled over into an HSA--so maybe the safe thing is to set up an MSA before the end of the year, and then when we know more about HSAs, decide whether to do a rollover.