A Health Savings Account (HSA) Beneficiary is an individual designated to receive the remaining funds in a Health Savings Account upon the account holder’s death. An HSA is a tax-advantaged account that allows individuals to save and pay for qualified medical expenses.
An HSA Beneficiary can be a spouse, family member, or anyone the account holder chooses. The designation of a beneficiary is important because it determines how the funds in the account will be handled after the account holder’s death.
If the beneficiary is the account holder’s spouse, the HSA can be treated as the spouse’s own HSA, allowing them to continue using the funds tax-free for qualified medical expenses. If the beneficiary is someone other than a spouse, the account will cease to be an HSA at the account holder’s death, and the account’s value may be subject to income tax, although it will not incur an additional penalty.
For example, if an individual has an HSA with a balance of $10,000 and names their child as the beneficiary, upon the individual’s death, the child would inherit the account. The child would then have to report the distribution as income on their tax return, but they would not face the 20% penalty typically associated with non-qualified distributions.
It is crucial for account holders to regularly review and update their HSA Beneficiary designations to ensure that funds are passed to the intended recipient and to facilitate smooth estate planning.
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