§401(h) is structured to fund retiree (and dependent) medical care — it is not a wealth-transfer vehicle. The beneficiary rules reflect that design.
Who can receive §401(h) reimbursement
The retiree, the retiree's spouse, and the retiree's tax-dependents (per IRC §152) are the only eligible recipients of §401(h) reimbursement. Adult children may qualify if they meet the dependent test.
Continuation after participant death
After the retiree's death, the surviving spouse and any qualifying dependents may continue to receive §401(h) reimbursements for their own qualified medical expenses until they too pass or no longer qualify.
Treatment of unused balances
When no eligible beneficiaries remain, unused §401(h) balances revert to the plan per the plan document's terms — typically used to offset future medical-sub-account expenses for other retirees, or applied per IRS reversion rules.
Why it is not an inheritable asset
Unlike an IRA or HSA, the §401(h) is a benefit attached to the participant's status as a retiree of the sponsoring employer. It does not pass to non-spouse, non-dependent heirs as a stand-alone account.