Retiree Medical Savings Account (RMSA)

[SteelyEyed]

Hello everyone,

I have a traditional medical insurance plan through my employer, use the FSA, and there is no HDHP/HSA option. My employer is now offering a Retiree Medical Savings Account (RMSA). There is a $4k/yr contribution limit. After one turns 40, there is a 50% match (I am younger than that though). The account is through America's VEBA. It takes either signing up for the account or a personal meeting with HR to find out what investments are available and their ERs, etc.

Does anybody have experience with these accounts or with this provider? There doesn't seem to be much literature on them, so what are the pros and cons?

Thanks!

[SteelyEyed]

...blatant self-bump since I posted this late at night and it may have been missed.

[caninelover]

Hi Steely,

My company started offering this a couple of years ago, and I had the same issue you did - not a lot of information out there to help you weigh pros/cons. My company offered a $5K 'jump-start' contribution for each employee, and pays $1000 per year into the rmsa on behalf of each employee (regardless of whether you contribute or not). For the first $3K the employee elects to contribute, company pays an additional match of 50%. Contributions are after-tax but compound tax free and can be withdrawn tax free in retirement. Fund offerings are limited but good quality (Vanguard index funds). Company contributions are notional (expensed when incurred), and we can use the funds to pay for health care costs if we retire from the company at age 55 or later (and can stay in the company's group plan, but you have to fund the costs). When we become eligible for medicare, funds can also be used to pay for medicare premiums. If you leave the company prior to age 55, you lose the company's contribution (but your contribution stay in a trust for your use after age 65). Prior to retirement, you can tap your contributions to pay for COBRA premiums, but that is all. Another item to note is that if you die, the company's contributions and yours as well go back to the company - you cannot will it to an heir.

I ultimately opted to fund the rmsa to the point of the company match. I plan to retire at ~ 55 (in about 15 years), so as long as I stay with the same employer (no plans to leave currently), I should benefit from this plan. Even I do seperate from my employer, I can still use my funds after age 65 for medicare premiums. I would be careful about putting too much into the plan, given its limitations, and I would want to understand what funds were available first. If they are good, then this is another avenue to 'save' in a tax-sheltered way for retirement.

[ourbrooks]

I can't find anything about "Retiree Medical Savings Account" anywhere in IRS documents. This appears to be purely an insurance company product, with no special tax treatment.

Some guesses/questions:

1. Is your contribution before or after taxes? Is the employer contribution taxable, either in the year it's made or on withdrawal?
2. What can you spend the money in the account on? Can you spend it on Medicare premiums? Can you spend it on the non-medical parts of long term care coverage?
3. What happens if you don't spend the money before you die? Do your heirs get anything?

The plan described by caninelover sounds like a sure source of profit for the insurance company and, possibly, the employer as well. If enough people die without using their funds, the company gets back its match and then some. Unless you're pretty sure you'll spend all of your part of the money, you might be better off in a plain, old tax deferred annuity.

[foxfirev5]

I've had a RMSA acct for 7 years. The withdrawals can be taken tax free after retirement age ( 10 years of service after age 45) if used for medical insurance premiums or out of pocket medical expenses.
The only downside to my plan is that there are no low cost VG funds. High expenses but the 50% match and annual employer contribution make paticipating a no brainer.