What happens to my HSA funds if I die and I named the below person/entity as my beneficiary?
- If Your Spouse, there will be no tax implications. The HSA is transferred directly to your spouse. He/she can then continue using the HSA money for spending, saving or investing within the standard IRS guidelines. It remains an HSA and the same tax-advantaged rules would continue to apply1.
- If Your Beneficiary (not your Spouse), the HSA ends on the date of your death. The funds will be distributed and taxed as income to the beneficiary based on the fair market value. However, the beneficiary can use the HSA funds to pay for medical expenses of the account holder for up to 12-months after their death2.
- If Your Estate or No Beneficiary Designated, the HSA will be distributed to your estate and taxed as income on your final income tax return.
1:IRC Sec. 223(f)(8)(A)
2:IRC Sec. 223(f)(8)(B)(i)