Can You Use an HSA for Funeral Costs?

The Short Answer: Not Yet

Under current law, an HSA distribution for funeral, burial, or cremation expenses is not a qualified medical expense. Internal Revenue Code Section 223(d)(2) ties tax-free HSA distributions to medical care as defined in Section 213(d). A nonqualified distribution is taxable income and generally carries an additional 20% tax before age 65, with exceptions for disability or death.

This catches many families off guard. When someone dies, the surviving spouse or executor often has HSA funds sitting in an account and funeral bills arriving within days. The gap between "available money" and "allowable use" is real.

The HSA Funeral Expansion Act (H.R. 2436)

Federal legislation introduced in 2025 as H.R. 2436 — the HSA Funeral Expansion Act — would treat distributions for funeral expenses of the HSA beneficiary as qualified distributions. If enacted, HSA funds could cover the beneficiary's funeral expenses.

This is a proposal, not current law. Don't plan around it unless it is enacted.

What HSA Funds Can Cover After a Death

While funeral costs themselves are excluded, some expenses in the period around a death can qualify if they meet HSA rules for the account holder, spouse, or dependent:

• Hospice care and end-of-life medical expenses incurred before death
• Ambulance services to or from a medical facility
• Medical equipment used during the final illness
• Long-term care premiums (within annual limits) that were part of the deceased's care plan

If the deceased was the HSA account holder, the account's treatment depends on the named beneficiary. If the surviving spouse is the beneficiary, the HSA transfers to them and remains an HSA with all the same tax advantages. If anyone else is the beneficiary, the account stops being an HSA on the date of death, the fair market value becomes taxable income to that person, and they can use the funds for anything — including funeral costs — with no 20% penalty, just the income tax.

Alternatives That Actually Work Now

For families facing immediate funeral costs, these funding sources are available today:

Life insurance proceeds. Claim timing depends on the policy and the completeness of the claim. Ask the insurer whether it offers expedited processing for funeral expenses; don't assume the proceeds will arrive by a particular date.

The Social Security Lump-Sum Death Payment. A one-time $255 payment may be available to an eligible surviving spouse or certain children who qualify on the deceased's record. It's modest, but it's fast — apply through SSA within two years of the death.

VA Burial Allowance. For eligible deaths on or after October 1, 2025, the VA lists a non-service-connected burial allowance and plot allowance of up to $1,002 each, and a service-connected burial allowance of up to $2,000. Eligibility and the amount depend on the circumstances of the death. Apply with Form 21P-530EZ and available service records such as the DD-214.

Irrevocable funeral trusts. If Medicaid eligibility is a concern, a funeral trust properly structured under state Medicaid rules can be excluded from countable assets. These funds are restricted to funeral expenses and may be transferred to a new provider under the trust terms and applicable state law.

Crowdfunding and community support. GoFundMe reports that funeral fundraisers are among its most common campaigns, with a median raise of $2,000–$3,000.

The Practical Takeaway

Don't count on HSA funds for funeral expenses under current law. If the HSA Funeral Expansion Act passes, the rules change — but legislation moves slowly. In the meantime, families are better served by comparing providers aggressively (the national median funeral cost is $9,170, but direct cremation averages $2,202), negotiating from a General Price List, and using the Funeral Home Selection Guide to identify savings before sitting down at the arrangement conference.