Extension Explains Potential Tax Savings
Montanans can open a medical care savings account at a local bank or credit union or make deposits into existing MSAs before Dec. 31 to reduce their state income taxes for 2025, according to Marsha Goetting, Montana State University Extension family economics specialist. The amount used to reduce income tax for Montana residents is the total amount deposited in an MSA during the tax year, not the amount withdrawn for eligible medical care expenses between January and December of the tax year.
Medical care savings account holders may deposit up to $4,600 to use for paid eligible medical expenses during the year. Even if medical expenses have already been paid this year, a person can open an MSA and withdraw the amount. Withdrawals for paid expenses can be made until Jan. 15, 2026. A person can deposit up to $4,600 by Dec. 30, 2025, not use it and still have state income tax savings. The amount rolls over for use in future years.
A person with taxable income over $31,700 could save approximately $271 ($543 for a married couple) in state income taxes by opening an MSA and depositing up to $4,600 for tax year 2025, Goetting said. Interest earned on the MSA is not subject to Montana income tax.
Eligible expenses include any items accepted by the Internal Revenue Service, including medical insurance premiums, prescription drugs, medical and dental services, nursing home care, eyeglasses, crutches and transportation for medical care. IRS Publication 502 provides a detailed list of eligible expenses and is available at irs.gov/publications/p502.
All resident taxpayers ages 18 and older are eligible to set up an MSA with a financial institution even if they have a similar plan, like a Section 125 Flexible Spending Account or a Federal Health Savings Account, provided by their employers. A taxpayer is not required to be covered by a high-deductible health insurance plan (as they are with an HSA) to be eligible for an MSA.
Goetting added that an MSA can be passed onto others when an account owner dies. By placing a payable on death designation on the account, individuals can leave those funds for spouses, children or parents to use for medical expenses.
If a person dies without designating a payable on death beneficiary, the money in an MSA will pass to heirs designated in a written will, Goetting said. “If a person does not have a written will, an MSA passes by Montana law to heirs with priority given to a spouse. Either way, you create a legacy. If you do not have beneficiaries, you could name your favorite nonprofit as the POD beneficiary.”
A detailed guide with more information, “Montana Medical Care Savings Accounts (MSAs) for the 2025 Tax Year,” is available online at no cost at the MSU Extension Store. Printed copies are available from local MSU Extension offices.
