How to Bequeath a Health Savings Account

It's important to name a beneficiary on the account.

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What happens to my health savings account when I die? Do my heirs have to pay taxes on the money in it? –J.Y., Port Charlotte, Fla.

You should name a beneficiary for your HSA. You can name anyone you want, but selecting a spouse is preferable because a spouse can use the inherited HSA tax-free for eligible medical expenses. If you name someone other than a spouse, the HSA money is disbursed to the beneficiary and is taxable. If you don't designate a beneficiary, the money will be included in your estate and will be taxed on your final income tax return.

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Kimberly Lankford
Kimberly Lankford
Contributing Editor, Kiplinger's Personal Finance

As the "Ask Kim" columnist for Kiplinger's Personal Finance, Lankford receives hundreds of personal finance questions from readers every month. She is the author of Rescue Your Financial Life (McGraw-Hill, 2003), The Insurance Maze: How You Can Save Money on Insurance -- and Still Get the Coverage You Need (Kaplan, 2006), Kiplinger's Ask Kim for Money Smart Solutions (Kaplan, 2007) and The Kiplinger/BBB Personal Finance Guide for Military Families. She is frequently featured as a financial expert on television and radio, including NBC's Today Show, CNN, CNBC and National Public Radio.