Health Savings Accounts (HSAs) are a great way to save money. 

Unlike any other tax-advantaged account, they provide a triple tax benefit: 

• Contributions are tax-deductible.
• Monies inside the HSA grow tax-free
• Withdrawals are tax-free if used for medical expenses. 

Withdrawals after age 65, if not used for medical expenses, are subject to regular income taxes.

Some wealth advisors counsel HSA owners to treat their accounts like a super IRA—to maximize their contributions and make few or no withdrawals for medical expenses. This type of strategy often works best when incorporated into a broader tax planning strategy. By the time they retire, they could have a substantial amount saved in their accounts. They can withdraw the money tax-free to pay medical expenses, or withdraw it for non-medical expenses and pay regular income tax.

But HSA owners need to understand that after they die, the tax code treats HSAs very differently from IRAs or 401(k)s. 

If your spouse is your HSA beneficiary (as is normally the case for married people), the account will automatically go to your spouse upon your death, with no taxes due. Your HSA becomes your surviving spouse’s HSA.

If you don’t have a spouse as your beneficiary, your HSA automatically ends on the date you die. 

Your non-spouse beneficiary—whether a child or someone else—will receive the funds and have to pay regular income tax on them that year. This is very different from the tax treatment for inherited IRAs or regular 401(k)s; non-spouse IRA and 401(k) beneficiaries have 10 years to withdraw all the money from the account and pay tax on it.

Sooner or later, every HSA will have a non-spouse beneficiary, whether because the HSA’s owner never married, they got divorced, or their spouse predeceased them. The HSA is generally not the best vehicle for passing your wealth to the next generation, making estate tax planning an important consideration for individuals looking to transfer wealth efficiently.

If someone other than your spouse is your HSA beneficiary, you can reduce the tax hit they’ll face when you die by making tax-free withdrawals from your account to reimburse yourself for past medical bills you paid. These include not just doctor bills but also dentist bills, vision care, and many other expenses. 

It doesn’t matter how old these bills are as long as you paid them after you established your HSA and didn’t deduct them on your taxes. However, you must have proper documentation for them. You can take such reimbursements anytime, but it is definitely something to consider if you become seriously ill and don’t expect to live much longer.

All HSA owners should get in the habit of keeping receipts for their medical expenses. There are HSA expense-tracking apps that can make it relatively easy to maintain this documentation.