This bill amends the Internal Revenue Code to allow tax-free distributions from health savings accounts for funeral expenses of the account beneficiary, up to $5,000, if paid within 90 days of death.
Kevin Hern
Representative
OK-1
This bill amends the Internal Revenue Code to allow tax-free distributions from health savings accounts (HSAs) to cover the funeral expenses of the account beneficiary. The definition of "funeral expenses" includes costs related to burial, cremation, and funeral services. The amount that can be distributed for funeral expenses is capped at $5,000 per account beneficiary, and expenses must be paid within 90 days of the account holder's death.
Using Your HSA for Funerals? Bill Proposes $5,000 Cap for Final Expenses
This proposed legislation tweaks the rules for Health Savings Accounts (HSAs), allowing funds to be used for funeral expenses of the account holder. Specifically, it amends the Internal Revenue Code to permit tax-free distributions up to $5,000 for costs like burial or cremation, provided these expenses are paid within 90 days of the person's death. The core idea is to let these pre-tax savings cover certain end-of-life costs that currently aren't eligible.
HSAs Get a New Purpose: Covering Final Expenses
Right now, your HSA is strictly for qualified medical expenses – think doctor visits, prescriptions, maybe dental work. This bill proposes adding a new category: funeral costs for the person whose name is on the account. It's a shift from solely health-related spending to include specific end-of-life expenses, acknowledging that these costs often arise unexpectedly alongside final medical bills.
The Fine Print: How It Works
The proposal sets a clear limit: a maximum of $5,000 from the HSA can go towards funeral expenses. The bill defines these broadly to cover the care and disposition of remains, including burial, cremation, and related services. There's also a timing element – these expenses must be paid within 90 days after the account holder passes away. Importantly, the bill treats these payments as if they occurred just before death, which matters for how they're handled tax-wise under HSA rules. This change would apply to payments made after the bill becomes law.
What This Means for Your Wallet (and Your Family)
For people with HSAs, this could offer a bit more flexibility during a difficult time. Instead of families scrambling to find funds or draining other savings for a funeral, up to $5,000 could potentially come directly from the deceased's HSA, using pre-tax dollars. It essentially provides another option for covering immediate post-death expenses, potentially easing the financial burden when families are already dealing with loss. It doesn't fundamentally change how HSAs work for the living, but it adds a specific, limited use for the funds after the account holder is gone.