Dying with a health savings account can leave a tax bomb for heirs

Adamkaz | E+ | Building up a large balance in a health savings account can be a smart financial move to cover medical expenses in old age. But dying with a hefty HSA can pose tax problems for heirs — specifically, non-spouse heirs like children, grandchildren, friends and others, according to financial planners. It's the "big unknown" that people don't understand about the tax-advantaged accounts, said Carolyn McClanahan, a certified financial planner and founder of Life Planning Partners in Jacksonville, Florida. The good news is: There are some ways to avoid the snafu. The HSA tax problem HSAs offer a three-pronged opportunity for tax savings: Contributions and growth are tax-free; withdrawals are, too, as long as used for qualifying medical expenses like doctor visits and prescriptions. Consumers can only contribute to the accounts if they have a high-deductible health insurance plan . Financial advisors often recommend that users invest their contributions for the long term if they can afford to pay for medical care out of pocket rather than raid their HSA. Account holders who treat their HSA this way can build a sizable balance, as with other investment accounts like 401(k)s that receive regular contributions and growth. McClanahan, a member of CNBC's Financial Advisor Council , said one of her clients had a $600,000 HSA, for example. …