NCPA - National Center for Policy Analysis

"Roth MSAs" Would Expand Health Care Choices

March 16, 2000

Congress can make it much easier for the elderly to self-insure for drug costs and other medical expenses not paid by Medicare or private insurance by allowing senior citizens to turn their Roth IRAs into "Roth MSAs," says economist John C. Goodman.

Roth IRAs (Individual Retirement Accounts) differ from ordinary IRAs in that deposits are made with after-tax instead of before-tax dollars. Both accounts grow tax-free; but since taxes on Roth IRAs are paid before the initial deposit, withdrawals are tax-free after age 59 and one half.

And while seniors with ordinary IRAs must stop making deposits when they reach the age of 70 and one half and begin making minimum withdrawals, they can contribute up to $2,000 a year to Roth IRAs at any age, and they are not required to withdraw funds at any time.

An ideal use for a Roth IRA is to turn it into a Roth MSA. For seniors who have only Medicare coverage, the Roth MSA could be used to pay expenses not paid by Medicare. For those who have both Medicare and Medigap insurance, the Roth MSA could be used to pay expenses not paid by either. Roth MSAs could wrap around virtually any form of insurance, including a Medicare HMO.

Some relatively minor changes to current law would be needed, such as lifting income restrictions on who can establish a Roth IRA or make deposits to the accounts, and allowing withdrawals for health care purposes any time after the account established.

Congress can allow Roth IRAs to be used as Roth MSAs on relatively short notice without extended hearings. This would significantly help senior citizens who face potential out-of-pocket expenses for prescription drugs.

Source: John C. Goodman (president, National Center for Policy Analysis), "Prescription Drugs for Seniors: The Roth IRA Solution," Brief Analysis No. 315, March 16, 2000, National Center for Policy Analysis, 12655 N. Central Expwy., Suite 720, Dallas, Texas 75251, (972) 386-6272.


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