designate beneficiary for an HSA account

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Subject Author Date designate beneficiary for an HSA account Brew1 08-07-2009  Re: designate beneficiary for an HSA account Mark Bole 08-07-2009  Re: designate beneficiary for an HSA account Mark Bole 08-16-2009  Re: designate beneficiary for an HSA account Brew1 08-16-2009
Posted by Brew1 on August 7, 2009, 5:08 pm Please log in for more thread options first a quick summary of the rules: if your spouse (must be opposite sex to count with the feds) is your beneficiary, it transfers to them as an HSA--obviously a good thing. if the beneficiary isn't your spouse, the transfer is fully taxable as income. What, if any, is the benefit of designating a non-spouse as a beneficiary (assuming that you're not a multi-millionaire)? Wouldn't it be better for the HSA to go into the estate, taxed according to the estate tax rules? Also, it seems easier for the administrator of the estate to use the money to pay for medical expenses incurred before the owner died. Thanks, I'm teaching a course on HSA's and the textbook says you should always designate a beneficiary--I'd like to be able to explain why. -- << ------------------------------------------------------- >> << The foregoing was not intended or written to be used, >> << nor can it used, for the purpose of avoiding penalties >> << that may be imposed upon the taxpayer. >> << >> << The Charter and the Guidelines for submitting posts >> << to this newsgroup as well as our anti-spamming policy >> << are at www.asktax.org. >> << Copyright (2007) - All rights reserved. >> << ------------------------------------------------------- >> Posted by Mark Bole on August 7, 2009, 7:30 pm Please log in for more thread options Brew1 wrote: > first a quick summary of the rules: > if your spouse (must be opposite sex to count with the feds) is your > beneficiary, it transfers to them as an HSA--obviously a good thing. > if the beneficiary isn't your spouse, the transfer is fully taxable as > income. > > What, if any, is the benefit of designating a non-spouse as a > beneficiary (assuming that you're not a multi-millionaire)? Not a tax benefit, but if you don't have a will, this would be a simple form of estate planning. The beneficiary doesn't have to accept it, after all. > Wouldn't > it be better for the HSA to go into the estate, taxed according to the > estate tax rules? The basis to the estate for income tax purposes will be the decedent's basis (no step-up), so there's still income tax to pay. (This is a form of income in respect of a decedent). The full value of account will be included in the gross value of the estate, however. -Mark Bole -- << ------------------------------------------------------- >> << The foregoing was not intended or written to be used, >> << nor can it used, for the purpose of avoiding penalties >> << that may be imposed upon the taxpayer. >> << >> << The Charter and the Guidelines for submitting posts >> << to this newsgroup as well as our anti-spamming policy >> << are at www.asktax.org. >> << Copyright (2007) - All rights reserved. >> << ------------------------------------------------------- >> Posted by Mark Bole on August 16, 2009, 2:21 pm Please log in for more thread options Mark Bole wrote: > Brew1 wrote: >> first a quick summary of the rules: >> if your spouse (must be opposite sex to count with the feds) is your >> beneficiary, it transfers to them as an HSA--obviously a good thing. >> if the beneficiary isn't your spouse, the transfer is fully taxable as >> income. >> >> What, if any, is the benefit of designating a non-spouse as a >> beneficiary (assuming that you're not a multi-millionaire)? > > Not a tax benefit, but if you don't have a will, this would be a simple > form of estate planning. The beneficiary doesn't have to accept it, > after all. > > >> Wouldn't >> it be better for the HSA to go into the estate, taxed according to the >> estate tax rules? > > The basis to the estate for income tax purposes will be the decedent's > basis (no step-up), so there's still income tax to pay. (This is a form > of income in respect of a decedent). The full value of account will be > included in the gross value of the estate, however. I also found the following in a US Treasury dept presentation on HSA's. It still indicates that income tax must be paid by someone, but it appears I was wrong to state that it is IRD. "To the extent the spouse is not the beneficiary: – The account will no longer be treated as an HSA upon the death of the individual – The account will become taxable to the decedent in the decedent’s final tax return if the estate is the beneficiary, otherwise, it will be taxable to the recipient. • Taxable amount will be reduced by any qualified medical expenses incurred by the deceased individual before death and paid by the recipient of the HSA • The taxable amount will also be reduced by the amount of estate tax paid due to inclusion of the HSA into the deceased individual’s estate" -Mark Bole -- << ------------------------------------------------------- >> << The foregoing was not intended or written to be used, >> << nor can it used, for the purpose of avoiding penalties >> << that may be imposed upon the taxpayer. >> << >> << The Charter and the Guidelines for submitting posts >> << to this newsgroup as well as our anti-spamming policy >> << are at www.asktax.org. >> << Copyright (2007) - All rights reserved. >> << ------------------------------------------------------- >> Posted by Brew1 on August 16, 2009, 8:51 pm Please log in for more thread options > Mark Bole wrote: > > I also found the following in a US Treasury dept presentation on HSA's. > It still indicates that income tax must be paid by someone, but it > appears I was wrong to state that it is IRD. > > "To the extent the spouse is not the beneficiary: > – The account will no longer be treated as an HSA upon the death > of the individual > – The account will become taxable to the decedent in the > decedent’s final tax return if the estate is the beneficiary, > otherwise, it will be taxable to the recipient. >    • Taxable amount will be reduced by any qualified medical expenses > incurred by the deceased individual before death and paid by the > recipient of the HSA >    • The taxable amount will also be reduced by the amount of estate > tax paid due to inclusion of the HSA into the deceased individual’s > estate" > > -Mark Bole > that's interesting--thanks, Mark. -- << ------------------------------------------------------- >> << The foregoing was not intended or written to be used, >> << nor can it used, for the purpose of avoiding penalties >> << that may be imposed upon the taxpayer. >> << >> << The Charter and the Guidelines for submitting posts >> << to this newsgroup as well as our anti-spamming policy >> << are at www.asktax.org. >> << Copyright (2007) - All rights reserved. >> << ------------------------------------------------------- >> Similar Threads Posted ending capital account does not match beginning capital account April 6, 2009, 11:49 am IRA with No Beneficiary Named January 10, 2007, 9:57 pm "Beneficiary" of Estate March 3, 2007, 4:29 am Roth IRA Beneficiary January 9, 2008, 9:07 am QHEE not for 529 beneficiary of record November 8, 2006, 3:03 am Estate tax and out-of-US charitable will beneficiary January 29, 2007, 2:10 am 401K beneficiary distribution April 11, 2007, 11:28 pm Tax implications of 401k and IRA to beneficiary February 4, 2009, 1:59 pm Trust Beneficiary Interest Deduction June 4, 2008, 2:11 pm non-spouse beneficiary 401k rollover to inherited IRA February 10, 2007, 6:43 am