HSA Beneficiary Rules

Health savings accounts (HSAs) allow you to save money for healthcare expenses while enjoying some tax breaks. This type of tax-advantaged account is associated with high deductible health plans (HDHPs). If you have an HSA, you can name a beneficiary to receive the money in your account should something happen to you. There are some HSA beneficiary rules to know before designating someone to inherit your savings.

If you need help getting the most out of your HSA, consider working with a financial advisor.

What Is a Health Savings Account and How Does It Work?

A health savings account is a savings account that’s intended to be used for qualified healthcare expenses. To have an HSA, you must first have a high deductible health plan. Your employer might offer one of these plans or you may purchase one on your own if you’re self-employed.

The IRS has certain rules for HSAs, including how much you can contribute each year and what you can use the money for. Contribution limits are determined by whether you have individual or family coverage. Here’s how much you can save in an HSA for 2025:

$4,300for individual plans
$8,550 for family plans

If you have an HSA through your job, your employer can make contributions on your behalf. The total amount of HSA contributions made by employers and employees can’t exceed the annual limit specified by the IRS.

So how do you spend money in an HSA? When you enroll, you should be issued a debit card. This debit card is linked to your account and you can use it to pay for healthcare expenses, the same way that you’d use any other debit card. The IRS determines what counts as HSA eligible expenses but generally, the list is fairly exhaustive.

HSAs can be an attractive savings option because of the tax benefits they offer. If you have an HSA, you can enjoy triple tax advantages in the form of:

Deductible contributions
Tax-deferred growth
Tax-free withdrawals

If you take money from your HSA to pay for qualified healthcare expenses, those withdrawals are tax-free. The only time you’d pay income tax on HSA withdrawals is if you use the money for non-eligible expenses. If you’re under age 65, you’d also pay a 20% tax penalty on the distribution.

What Is an HSA Beneficiary?

An HSA beneficiary is the person you designate to receive the remaining balance of your health savings account after you pass away. Just like with a retirement account or life insurance policy, naming a beneficiary ensures your HSA funds are transferred smoothly and according to your wishes. While many people choose a spouse, you can name anyone, family, friends or even a trust, as long as the designation is clearly documented with your HSA provider.

Choosing the right beneficiary matters because the tax rules that apply after your death depend on who inherits the account. If your spouse is the beneficiary, the HSA simply becomes their own, allowing them to use the funds tax-free for qualified medical expenses. For non-spouse beneficiaries, the account doesn’t retain its tax advantages, and the remaining balance typically becomes taxable income.

HSA Beneficiary Rules

When naming a beneficiary for your HSA, it’s important to understand what your options are and what responsibilities are assigned to the person who inherits your account.

In terms of your who can be a beneficiary for an HSA, the options include your:

Spouse
Children
Siblings or other relatives
Estate

If a spouse is designated as your beneficiary, they become the owner of your HSA after you pass away. That means the benefits of the account, including tax-free withdrawals for qualified healthcare expenses, are theirs to enjoy as well. They can leave the account open and withdraw the money as needed or move it to their own HSA if they also have a health savings account.

Choosing your spouse to be the beneficiary for your HSA may be the most logical option if you’d like to minimize tax impacts. If you choose someone other than a spouse, such as your children or a sibling, they do not get the same benefits. They’d be required to take a full distribution from the account, which would be taxable to them. That could be problematic if a large HSA distribution temporarily pushes them into a higher tax bracket.

Naming your estate as the beneficiary is something you might consider if you don’t have any single person you’d like to receive those assets. Any funds in the HSA would be transferred to your estate after you pass away. When your executor files your file tax return, HSA monies would be treated as taxable income.

Of these options, naming your spouse as beneficiary offers the most favorable tax treatment. But if you’re unmarried, divorced or widowed that might not be doable. Talking to your financial advisor can help you decide what your best option is, based on the choices you have available.

What Happens If You Don’t Name an HSA Beneficiary?

If you have an HSA but haven’t named a beneficiary, one of two things can happen when you pass away. First, if you’re married, the company holding your HSA may automatically assign your spouse to be the designated beneficiary. Once again, that means the HSA would become theirs for all intents and purposes.

That may not be an issue if you’d always intended to name your spouse as beneficiary anyway. But if you’re legally separated or planning to divorce, you might not want your HSA money to go to your soon-to-be former spouse.

If you’re single and haven’t named someone to inherit, HSA beneficiary rules dictate that the money be transferred to your estate. The distribution would be included in your final tax return. What happens to the money at this point can depend on whether or not you had a will or trust in place.

For example, if you have a will you might include a provision specifying that any amounts not specifically named be distributed equally among your heirs. Or you might use a will to create a pour-over trust, which would transplant HSA funds into a trust after you die.

If you don’t have a will, then your estate would be divided up following state inheritance laws. This means that you have no control over where your assets go; instead, the state decides who gets what. That’s perhaps the most important reason to name beneficiaries for health savings accounts.

What If You’re the Beneficiary of an HSA?

If you inherit an HSA as a spouse, you receive the most favorable treatment: the account becomes your own, allowing you to continue using the funds tax-free for qualified medical expenses. You can keep the HSA open, make withdrawals as needed and even contribute to it if you meet eligibility requirements. This seamless transfer helps preserve the account’s tax advantages and keeps your healthcare savings intact.

For non-spouse beneficiaries, the rules work differently. You cannot treat the inherited HSA as your own, and the full account balance is typically counted as taxable income in the year you receive it. While you can still use the funds to pay for the deceased’s outstanding medical expenses within one year of their death, any remaining amount becomes subject to regular income tax. Knowing these distinctions can help you prepare for potential tax implications and decide how to handle the funds wisely.

Bottom Line

Understanding HSA beneficiary rules is essential for protecting the tax advantages of your account and ensuring your healthcare savings are passed on as efficiently as possible. The person you choose, especially whether they’re a spouse or non-spouse, determines how the account will be treated after your death and what tax consequences may follow.

Retirement Planning Tips

Consider talking to a financial advisor about how to incorporate an HSA into your financial plan and who to name as beneficiary. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
If you have a Flexible Spending Account in place of an HSA, note that these accounts do not allow you to name a beneficiary. Money in an FSA is use it or lose it, meaning that if you don’t spend it down each year, you can’t carry the remaining funds forward. If you pass away, your spouse or heirs may be able to request reimbursement for eligible medical expenses from your employer, but only for ones that were incurred prior to your death.