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High Deductible Health Plan? How Your Health Savings Account (HSA) Works with Your Estate Plan

If you are enrolled in a qualified high-deductible health plan (HDHP), you must consider how your health savings account (HSA) fits into your estate plan—especially to make sure that any hard-earned money left in your HSA when you die goes where you want it.

What is an HSA?

An HSA is an account whose funds may be used to pay for qualified medical expenses or saved for expenses that arise in the future. These accounts have several tax advantages. You can deduct contributions to the account up to the yearly limit. You pay no income taxes on earnings in the account (such as interest or dividends). And, withdrawals from the account to pay for qualified medical expenses are tax-free. An HSA is an option for any one enrolled in a qualified HDHP. Your insurer will be able to tell you if you have a qualified HDHP.

Unused HSA funds may be carried over into the following year, which is in sharp contrast to a flexible spending account (FSA), whose funds are considered “use it or lose it,” because you can only carry over up to $500 from one year to the next, as long as your plan allows for the carry over.

An HSA functions as a bank account plus investment account fusion while you’re alive but gets treated more like a retirement account at your death—and this dichotomy makes strategic estate planning that considers all tax ramifications crucial.

Estate Planning with HSAs