What happens to an HSA after death?

If you have a high-deductible health plan and have a Health Savings Account (“HSA”) then you may wonder what happens to that money after your death. When you set up your HSA you will choose (or chose) a beneficiary for those funds. Review your initial enrollment forms carefully and provide accurate information.

First, your loved ones can you use your HSA funds to pay for any qualified medical expenses that you incurred until your death.

Then, if your spouse is the beneficiary then they may transfer the HSA into their possession and continue to use the money in accordance with the terms of the HSA.

If your spouse is not the beneficiary, then the funds will be taxed and distributed to the beneficiary. The tax will be calculated for the year of date of death. For example, if you die on December 31, 2022, then the HSA will be taxed in accordance with the policies for the 2022 tax year even if the funds are distributed in 2023.

Lifetime Implications:

HSAs can be extremely beneficial due to their tax status, but awareness is key here. After your death, your loved ones can use the HSA funds to pay your qualified medical expenses; however, this information is often hidden in a secure employee portal.

Therefore, it’s important to have this information available to your loved ones as part of your Vital File and update it each year when you review your employee benefits or when your job situation changes.

Source IRS Publication 969. This blog was last updated February 14, 2023.