Inherited HSA

[USGrant1962]

I just stumbled upon a quirk in HSAs that didn't know. While they are one of the most tax-advantaged accounts in life, they are one of the worst in death. HSA accounts are fully taxable to the non-spouse beneficiary in the year of death.

So as you age, blow that HSA dough!

Spouse isn’t the designated beneficiary. If your
spouse isn’t the designated beneficiary of your HSA:
• The account stops being an HSA, and
• The fair market value of the HSA becomes taxable to
the beneficiary in the year in which you die.
If your estate is the beneficiary, the value is included on
your final income tax return.

https://www.irs.gov/pub/irs-pdf/p969.pdf

 

[Onward]

Damn

 

[gwraigty]

Yes, every so often I stumble across an article that mentions this. It's usually titled something like: Why Your Kids May Not Want Your HSA. At any rate, the tax hit is only for that one year and it's still money the kids didn't have before. Still, it may be nice to spend it down while you can on applicable expenses vs. using other funds and leaving the HSA alone, unless there's another overriding reason.

 

[MichaelB]

A non-spouse beneficiary has one year after the date of death to pay qualified medical expenses incurred by the deceased before dying.