Inheriting an HSA: What Happens After the Owner Dies?

If your spouse left you the HSA

When the surviving spouse is the designated beneficiary, the account becomes that spouse's HSA. You don't owe federal income tax on the whole balance simply because you inherited it. You can continue using it under the usual HSA rules.

Ask the provider how to keep the money in an HSA before choosing a cash payout. For example, HealthEquity's death-claim form lets a spouse transfer the funds to an existing or new HSA, including one at another institution. It also offers a check to close the account. Review the tax consequences before selecting that option.

You must still meet the federal eligibility requirements to make new contributions. Inheriting the account doesn't automatically make you eligible to add money.

A child or other beneficiary owes income tax

For a beneficiary who isn't the designated surviving spouse, the account stops being an HSA on the owner's date of death. Its value on that date becomes income for the beneficiary in the year the owner died. These are the federal rules under Internal Revenue Code Section 223.

Ask the provider for the account's fair market value on the date of death. This means what the cash and investments were worth that day. The balance on your latest statement may be different.

Waiting to collect the money doesn't move that income into a later tax year. Before spending it, ask your tax preparer how much to set aside for taxes.

When the estate receives the account

If the estate is the beneficiary, the account's value on the date of death goes on the deceased person's final income tax return. IRS Publication 559 explains this treatment. Give the HSA records to whoever is preparing that return.

If the provider has no beneficiary on file, ask who receives the money under the account agreement. Being the executor or inheriting under the will doesn't give you the tax treatment reserved for a designated surviving spouse.

Which medical bills can reduce the taxable amount?

A beneficiary other than the estate can reduce the amount counted as income by paying certain medical bills for the person who died. Under Section 223, the expenses must qualify as medical expenses, must have been incurred before death, and must be paid by that beneficiary within one year after the death.

Keep the bill showing when the care was provided, the insurance payment details, and proof that you paid. Ask your tax preparer which expenses meet the rule before subtracting them. The estate cannot claim this particular reduction, and a nonspouse beneficiary's own medical expenses don't qualify for it.

The one-year payment window may extend past a tax-filing deadline. If you expect to pay a qualifying bill after filing, ask the preparer how that payment should be reflected on the return.

Claim the account and prepare the tax records

1. Request the provider's death-claim packet. Follow its document requirements. HealthEquity, for example, asks for a completed form and death certificate, plus authority documents when an estate representative makes the claim.

2. Ask for separate figures for the value on the date of death and any earnings afterward. For a nonspouse beneficiary, those later earnings must also be reported as income.

3. Give your tax preparer the beneficiary confirmation, valuation, payout records, and medical-expense receipts. The Form 8889 instructions cover reporting an inherited HSA. Under the IRS's 2025 instructions, the death distribution is exempt from the additional 20% tax.

4. Keep the provider's completion notice with your tax records. Have the preparer check any figures that don't match before filing.