what happens to your hsa when you die

You're wondering: "What happens to my HSA when I die?"

A benefit of contributing to a Health Savings Account (HSA) is that contributions never expire. They accumulate, tax-advantaged until used for HSA-eligible medical expenses (or other expenses if you're over the age of 65). Or it's passed on to a casher in one case you laissez passer abroad. That ways your HSA could grow to become quite an nugget.

The rules governing what happens to your HSA upon your expiry depend on your casher. Yous'll want to include the business relationship in your manor planning process. And think about the virtually helpful beneficiary.

Have y'all been tasked with handling someone's estate? If so, you'll demand to know how different beneficiaries affect the status of the deceased person's HSA. And beneficiaries need to know how their taxes are afflicted upon inheriting the account.

Who inherits your HSA after death?

Your HSA Casher.

Your HSA is owned past you. This is regardless of your healthcare plan type. Or if your HSA is used on qualifying medical expenses for yourself, spouse, and dependents.

That means it's just like any other asset. And a single person or entity (like a trust) should exist named equally the beneficiary of your business relationship. Otherwise, your manor volition inherit it and that might not be as helpful for tax purposes.

And so what is a casher? It'southward the person or entity that inherits an asset once a person dies.

Who tin I name as my beneficiary?

When estate planning, you have a few different beneficiary options.

• Your spouse. As long equally y'all are legally married, it doesn't matter which state you live in. Or whether you're of the same or different sex. All spouses are treated the same when it comes to inheritance.
• An adult child, relative, or non-relative. To name someone other than your spouse equally a casher, some states require a spouse's written approval. If you are role of a civil union or domestic partnership, your partner volition be treated equally a non-spousal beneficiary.
• A trust (revocable or irrevocable). This could have tax advantages for non-spousal beneficiaries.
• Your estate or no beneficiary. These are functionally equivalent.

What happens when my casher inherits my business relationship?

It depends on who that beneficiary is. Beginning, either your spouse, adult child, or executor of your estate will demand to notify the ambassador of your HSA.

The HSA administrator volition gear up a document for the executor of your estate. This document will present the fair market place value of your account on the date of your passing. This will be used to assess any income taxes owed by yous and what's taxable to the casher.

What happens next differs depending on who or what you've called to inherit your account.

Surviving spouse beneficiary

With a spouse casher, there are no tax implications. The HSA remains an HSA and is transferred to your spouse. If he or she is under the age of 65, they can use the money tax-free for qualified medical expenses. If the money is used for something other than qualified medical expenses, they will take to pay income taxes on the distributed amount and a xx% penalty.

If your spouse is over the age of 65, he or she can employ the money on annihilation they want, as you would have been able to do. The difference is that your spouse doesn't accept to have a loftier-deductible health programme. Instead, they tin can have whatever wellness insurance.

Not-spouse designated beneficiary

For a non-spouse designated beneficiary, the HSA ends on the engagement of your expiry. The funds are distributed and taxes at the fair market place value of the account on the engagement of your decease. The beneficiary can use the HSA funds to pay for any qualified medical expenses of the account holder for up to 12-months after their death. And will not tax on that amount.

If the HSA money is invested, the business relationship tin make gains between the time of the business relationship holder's death and the endmost of the account. Capital gains are taxable just similar whatsoever other investment account.

Revocable or irrevocable trust

Like with a non-spouse casher, the HSA ends on the date of your death. The fair market value of your account volition be included on your final tax return. This structure will allow you to pass the business relationship to beneficiaries under the more favorable estate-tax exemption. This is especially valuable if any potential beneficiaries are still minors at the time of your death.

Estate or no beneficiary is designated

Similar the previous examples, the HSA ends on the date of your decease. The off-white market value of your account will be included on your final income tax render. And the HSA will be distributed to your estate.

What to exercise next?

The expiry of a loved one tin be a stressful time for families. But estate planning tin can help ease the authoritative burden that comes with it. If yous have questions about choosing the correct beneficiary for your HSA business relationship, contact your attorney or accountant. They should be able to walk you through the details of your specific state of affairs.

Regardless of your historic period or gross income, the well-nigh important step is to log into your HSA platform and ensure y'all take a beneficiary assigned. At that place is no reason to delay. Do this today. Even if yous don't use your HSA funds, information technology'southward nice knowing that someone will do good from the health savings.

The HSA Tax Guide

We as well put together an HSA Tax Guide. Review the HSA IRS tax details to maximize your revenue enhancement savings. And gain a clear understanding of your revenue enhancement liabilities.

• HSA Tax Guide
• How HSA Tax Deductions Work
• HSA Tax Course Checklist
• What is Tax Form 5498?

Read more by Lauren Hargrave

Lauren Hargrave is a writer from San Francisco who focuses on technology, finance and wellness. She follows comedians like most people follow bands and believes an outdoor sweat session tin cure almost whatever bad mood. She's also been writing her first novel for so long, her mom doesn't ask most information technology anymore.

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