Designating a Health Savings Account (HSA) Beneficiary

Knowing you are prepared for the future can bring peace of mind. Anyone with a health savings account (HSA) has already taken steps to prepare for future medical expenses and health care costs. The next step? Deciding who will receive the funds in your HSA when you’re no longer around. Just like any other financial account, it’s a smart move to designate an HSA beneficiary—the individual(s) or legal entity that will inherit your remaining HSA funds when you pass away.

In this article we’ll cover some of the basics of what an HSA beneficiary is and why it’s a good idea to designate one as part of a secure and well-rounded financial future!

A beneficiary is a person or entity who will receive assets when the account owner dies, including funds left in a pension, 401(k), life insurance policy, or other financial account. Choosing a beneficiary is related to the practice of writing a will or a document that legally explains how to distribute an individual’s possessions and assets when they pass away. The difference with an account beneficiary is that it is specific to a particular financial account or asset.

Because an HSA can accumulate funds, interest, and capital gains from investments, and remains with the owner throughout their lifetime, an HSA owner can designate a beneficiary who will get any remaining funds in the event of their death. You can designate a beneficiary for your HSA anytime. Often, people will select beneficiaries while opening their HSA or after a life event like marriage, the birth or adoption of a child, retirement, divorce, or illness or death of a spouse or loved one.

A beneficiary can be a spouse, a child, or other individual, or a legal entity of your choosing such as your estate. The beneficiary you choose for your HSA may have tax implications for the person or entity receiving the funds. If you are married and designate your spouse as your beneficiary, they can opt to transfer the remaining HSA funds to their own HSA account, or they can make tax-free withdrawals from and contributions to your HSA to pay for qualified medical expenses.

If you designate an individual other than a spouse like an adult child, partner, or other individual, the funds from your HSA will be distributed and taxed as income at fair market value. Individual beneficiaries other than a spouse may also use the HSA funds they receive to pay for qualified medical expenses for up to a year after the account owner’s death.

If you choose a legal entity such as your estate to be the beneficiary of your HSA, the total value will be included as taxable income in your final tax return. If you are not married and have not designated a beneficiary, it will automatically transfer to your estate.

You can also designate multiple beneficiaries and specify what percentage of your remaining HSA funds will go to which individual or entity. In addition, you can add contingent beneficiaries as well who will inherit your HSA funds should the primary beneficiary pass away.

You typically designate your beneficiaries when you are opening your HSA account for the first time. However, if you didn’t set up your beneficiaries then, or if you want to change them, you can do this at any time through your HSA custodian or your account portal. You may also fill in a beneficiary designation form and mail it to your HSA custodian as well to update your beneficiaries.

Choosing a beneficiary takes just a few minutes, but can provide a feeling of well-being and financial security for you and your loved ones. If you’re not sure if you selected a beneficiary when opening your HSA, or if you want to change it, contact the customer support of your HSA custodian to learn how to update your beneficiaries.

The designation of a beneficiary for your HSA is one more step you can take to secure your financial future. Having a contingency plan in place can give you peace of mind knowing that your loved ones will be taken care of should anything happen. Check one more thing off your to-do list and check your HSA beneficiaries today!