What happens to unclaimed funds in a health savings account?


Quick Answer

The Internal Revenue Service treats a Health Savings Account like a personal savings account, which means that unused funds remain in the account until spent on qualified expenses, explains the IRS. If a taxpayer leaves a HSA dormant for too long, his state's unclaimed property department may claim it. For example, the State of Oregon Unclaimed Property Section can reclaim a dormant HSA after three years of inactivity, but other states may have different thresholds.

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Full Answer

While the unclaimed property rules may differ, once the state declares the account abandoned, it holds the money in a special fund, according to CNN. The state holds this money indefinitely, and the owner or designated heirs may reclaim it by contacting the unclaimed property division and providing proof of identity or ownership. However, if this money is withdrawn for non-medical purposes after reclamation, the IRS may impose tax penalties.

Flexible Spending Accounts, a similar type of tax-exempt account administered by companies to help defray employees' medical expenses, behave slightly differently, explains the IRS. Department of the Treasury rules state that employees must use most of these funds in the calendar year designated, with the exception of a $500 allowance that may be rolled over into the next year. The company can reclaim any remaining funds above this limit and use them to pay for the administration of the FSA plan, according to the WNYC public radio station,

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