How to Claim IRA Money Used to Pay Medical Bills
One of the few exceptions that the Internal Revenue Service (IRS) allows for early withdrawals from an IRA is for significant medical expenses. You must claim the early withdrawal on your taxes, including filling out an additional form, Form 5329, to document the early withdrawal and determine how much of a penalty, if any, you owe on your early withdrawal. In addition, you must also use Form 1040 to claim the money on your tax return.
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Instructions
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Withdraw the money from your financial institution where you keep your IRA account. Each financial institution has its own withdrawal form.
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Make sure you receive a Form 1099-R from your financial institution at the end of the year. When claiming the IRA money used to pay medical bills as a qualified expense on your taxes, Form 1099-R will show you how much you withdrew and how much is taxable.
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Document all of your qualifying medical bills. Qualifying medical bills include preventive care, treatment, dental work, vision care and prescription drugs, among other costs.
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Determine how much you are allowed to withdraw from your IRA by multiplying your adjusted gross income by 0.075 and subtracting the result from your medical expenses. For example, if your adjusted gross income was $58,000 and your medical bills were $12,350, you would subtract $4,350 from $12,350 and find you could withdraw up to $8,000 without penalty.
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Complete Form 5329 (see link in Resources). You must complete this form and submit it with your tax return even if your entire withdrawal is qualified. In the space next to Line 2 write "05," which is the code for medical expenses.
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Report the entire amount of your distribution on Line 15a of Form 1040. On Line 15b, only write the taxable portion of the withdrawal. You can find the taxable portion in Box 2a of your Form 1099-R.
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Tips & Warnings
Qualified early withdrawals can still be taxable. Just because you do not have to pay an early withdrawal penalty does not mean that the withdrawal is tax free as well.
Just because you can withdraw money without penalty from your IRA does not mean it is in your best interests to do so.
