The HSA is then handled in one among two methods, relying upon whether or not the beneficiary is the account holder’s surviving partner.
A partner “robotically and immediately” turns into the HSA account holder, Levine defined. Importantly, such a switch of possession will not be taxable, and future distributions from the HSA can be topic to earnings tax solely to the extent that they weren’t used for certified medical bills.
As soon as the account is transferred to their title, the surviving partner can designate a brand new beneficiary to obtain any quantities remaining within the HSA upon their very own loss of life. Different choices embrace rolling some or all the HSA’s account steadiness into one other HSA they already personal.
All Different Inheritors
Levine and Slott then mentioned what occurs to HSA funds inherited by anybody aside from a surviving partner.
Usually, the HSA then ceases to be an HSA. In flip, an quantity equal to the honest market worth of the account belongings as of the date of the account holder’s loss of life is included within the beneficiary’s gross earnings.
Notably, a non-spouse beneficiary could scale back that quantity by any funds produced from the HSA for certified medical bills incurred by the deceased account holder earlier than loss of life. However, as Levine and Slott emphasised, such funds have to be made inside one yr after the unique proprietor’s loss of life.
As well as, the unique proprietor can title their very own property because the HSA beneficiary. In such a case, the remaining quantity is included within the decedent’s gross earnings for the yr wherein the loss of life occurred.
Pictured: Jeff Levine and Ed Slott