This bill amends the Internal Revenue Code to allow distributions from Health Savings Accounts (HSAs) for the account beneficiary's funeral expenses, up to a $\$5,000$ limit, to be treated as qualified distributions.
Kevin Hern
Representative
OK-1
This bill amends the Internal Revenue Code to allow distributions from a Health Savings Account (HSA) for the funeral expenses of the account beneficiary to be treated as qualified, tax-free distributions. These expenses, which include burial, cremation, and related services, are capped at a total of \$5,000 per beneficiary. The legislation also clarifies that funeral expenses incurred within 90 days after the account holder's death can be treated as if they occurred before death for tax purposes.
HSA Funds Get Expanded Use: Up to $5,000 for Funeral Expenses Now Tax-Free
If you’re like most people, you’re trying to squeeze every last drop of tax advantage out of your savings, and the Health Savings Account (HSA) is a major tool in that effort. This new legislation is about making your HSA funds a little more flexible when you need them most.
The Final Expense Account: What’s Changing
Right now, your HSA money is only tax-free if you use it for qualified medical expenses. This bill amends the Internal Revenue Code to expand that list significantly: it adds funeral expenses for the account holder to the list of qualified distributions. Essentially, this means if you pass away, the funds withdrawn from your HSA to cover your final arrangements won't be taxed, providing a much-needed financial break for your family.
This isn't some vague promise; the bill spells out exactly what counts as a qualified funeral expense. We’re talking about the big stuff: burial, cremation, embalming, the casket or urn, the funeral director’s services, transportation of the remains, and even the cost of the grave plot or digging the grave. It covers a wide range of costs associated with final arrangements, making this provision highly practical.
The $5,000 Cap and the 90-Day Rule
Before you start planning a lavish send-off entirely on your HSA dime, there’s a crucial detail: the tax-free distribution for funeral expenses is capped at $5,000 per account beneficiary. While $5,000 might not cover every expense—the average funeral cost often exceeds that—it provides a solid, tax-advantaged chunk of money to ease the immediate financial burden on your loved ones.
There is also a smart timing provision built in. For the 90 days immediately following the account holder’s death, any funeral expenses incurred are treated as if they happened before death. This ensures that immediate post-mortem costs—like paying the funeral home right away—can be covered using the deceased’s HSA funds without triggering a tax penalty, simplifying the process during a stressful time. This flexibility applies to expenses paid after the bill becomes law.
Real-World Impact: Easing the Burden
For the busy person juggling life insurance policies and estate planning, this change is a small but significant win. Think about a family where one spouse manages the HSA. If that person passes away, the surviving spouse can immediately access up to $5,000 of those pre-tax savings to cover funeral costs, avoiding the need to dip into taxed savings or rush a life insurance payout. It adds another layer of utility to the HSA, making it not just a health savings vehicle but a modest end-of-life planning tool.
Because the bill is highly specific about what expenses qualify and includes a clear monetary limit, it’s low on vagueness. The only real challenge is that the $5,000 cap might not be enough for high-cost funerals, meaning families will still need other funding sources. However, the bill successfully achieves its goal of providing a designated, tax-free path for covering a portion of these inevitable costs.