What will happen to Your HSA Funds? You can name people to receive money from your health savings account, yes. But the tax benefits of these plans often go away when the person dies.
That’s why HSAs and high-deductible health plans are known for giving you a rare triple tax benefit. You can deduct your contributions from your taxes, the balance can grow tax-free, and you can take money out tax-free for certain medical costs. With an HSA, you don’t have to “use it or lose it” like you do with a flexible spending account. Instead, you can roll over your balance from year to year and invest it to grow.
What will happen to Your HSA Funds After Your Death?
Also, you don’t have to make the withdrawals in the same year that you pay for the medical bills. You can use medical bills that haven’t been reimbursed to get tax-free withdrawals years or even decades from now, as long as you keep good records of them.
Because of this, a lot of people who can pay for their medical bills with other money use their HSAs as an extra way to save for retirement. There is no minimum amount that must be taken out, and it may be tempting to keep money in an HSA for as long as possible.
Some people don’t mind if you name your spouse as a beneficiary if you’re married. When a spouse inherits an HSA, they can choose to treat it as their own. This means they can take money out tax-free to pay for certain medical costs.
But some beneficiaries will have to empty the accounts and pay income tax on the money they take out. You won’t be charged extra for these withdrawals, but you also can’t put them off. Non-spouse beneficiaries, on the other hand, usually have 10 years to empty most inherited retirement plan accounts.
Anyone you don’t name will get any money left in the account after you die. It will be given to your estate and taxed on your final income tax return.
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Home equity in states with community property
Even in community property states like California, an item bought before marriage is usually seen as separate property. What if the mortgage is paid off with “community funds”? This is money that either spouse earned while they were married. Then the spouse who isn’t on the title may be able to get some of the home’s value going up after the wedding.
That might not keep you from being kicked out if your spouse dies or from having to pay a lot of money to go to court to get a divorce, though. Talking to a lawyer now could help you get ready for either outcome.
Social Security benefits being held up
The first one. If you get spousal benefits, you don’t get the delayed retirement credits that will raise your own benefit by 8% every year until you turn 70.
But benefits for survivors are not the same. If you die first, your wife could get up to 100% of your benefit, which would include any credits you earned for retiring later than planned.
