It depends on who you name as your beneficiary. Your HSA can continue to provide tax advantages for a spouse, or become taxable income to others.
👩❤️👨 If Your Spouse Is the Beneficiary:
Your HSA simply becomes your spouse’s HSA.
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It remains tax-advantaged
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They can use the funds for qualified medical expenses
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The account continues as if it were always theirs
👨👩👧👦 If Someone Other Than Your Spouse Is the Beneficiary:
The HSA ends on your date of death, and the full account value is treated as taxable income to the beneficiary.
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No 20% penalty applies
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Income tax will be owed in the year of death
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The account cannot continue as an HSA
⚠️ No Named Beneficiary?
If no one is listed, the HSA becomes part of your estate and is taxed on your final income tax return.
🧠 Tip:
To preserve the tax benefits, make sure to name your spouse as the HSA beneficiary if possible—and keep that designation up to date.