Traditional IRA

Posts Tagged ‘medical expense’

Medical Expense for IRA Distribution Exception

What amount can be distributed from a Traditional IRA or Roth IRA to pay for unreimbursed medical expenses and avoid the IRA early withdrawl penalties?

Unreimbursed medical expenses are expenses that would be included in figuring the medical expense itemized deduction (even if the person does not itemize). 

The maximum amount that can be distributed from an IRA without incurring the federal 10% IRA early withdrawl penalties is: 

• The amount paid for unreimbursed medical expenses during the year of the IRA distribution; minus, 
• 7.5% of adjusted gross income (AGI) for the year of IRA distribution.

Example:

Mr. Smith, who is under age 59 �, paid $20,000 of allowable unreimbursed medical expenses during the year. Mr. Smith’s AGI is $100,000 (including any IRA distributions that same year). 

The maximum amount that can be distributed from Mr. Smith’s Traditional IRA or Roth IRA in that year without penalty is $12,500 ($20,000 – $7,500 (7.5% of AGI)). 

The IRA distribution must be in the same tax year that the unreimbursed medical expenses are paid. The IRA distribution is still subject to income tax. 

When do IRA distributions for medical insurance avoid the federal 10% IRA early withdrawl penalties?

An individual can make penalty free pre-59 � IRA distributions to pay medical insurance for him/herself, his/her spouse, and his/her dependents, provided all of the following four conditions apply: 

• The individual has lost his or her job. 
• The individual has received unemployment Compensation paid under any federal or state law for 12 consecutive weeks because of losing his/her job.

Do the same rules for medical expenses and medical insurance Traditional IRA distributions also apply to Roth IRA Distributions?

Yes. 

The same rules apply to taxable Roth IRA distributions.