(taken from the bogleheads discussion forum with minor edits)
Quote:
Almost seems like it makes sense to leave the funds in for a while, pay medical expenses out of after tax money (never pay or write a check from HSA to oneself) and let the account build up. Seems like worst case is you remain really healthy and risk having some funds revert to regular IRA tax status when/after you are 65. I can't imagine not having some out-of-pocket medical expenses forever though. Am I missing anything here?
Answer:
You are missing a lot.
You don't have to revert to regular IRA tax status at 65. You can keep the HSA till beyond the grave. You can use it for long-term care premiums (up to a limit) and Medical B and D premiums, and a long list of medical and dental expenses after
65 even if you are not still in an HDHP. But you can't contribute more after you go into Medicare.The account can be transferred to a surviving spouse.
Note that you can withdraw tax free from your HSA for anything that you paid out of pocket in the past since the date you started your HDHP. After you die, your executor can pay those old bills. If you don't have a surviving spouse, the executor probably should pay the old bills since I believe that has the effect of transferring the HSA to your estate. That is, it converts from income taxes for the inheritors to typically lower estate taxes.
The only drawback to this is that you have to keep the records on all your past bills for a long time in case the IRA audits.