If you have lost your job, you may be able to take an early IRA distribution without penalty. To receive an exemption for the cost of medical insurance for yourself, spouse and dependents, you must meet certain criteria set by the IRS. You must have lost your job, received unemployment under federal or state law for at least 12 weeks, received the distributions during the same year or the following year and taken the distribution no later than 60 days after being reemployed. You must properly report the distribution on your taxes to avoid penalties.
Things You'll Need
- IRS Form 5329
- IRS Form 1040
Request a distribution from your IRA by submitting an IRA distribution request form. These forms will vary slightly between different financial institutions. Your financial institution cannot stop you from withdrawing money from your IRA regardless of your age. The IRS considers any withdrawal before age 59 1/2 as early and normally subject to a 10 percent penalty on the withdrawal amount.
Use the money for your health insurance premiums. Though you do not have to submit records with your tax return, you need them in the event that your return gets audited.
Complete part I of form 5329 when you file your income taxes to declare your exemption to the early withdrawal penalty. Next to line 2, write "07" to indicate you are taking the distribution to pay for health insurance premiums while unemployed.
Report your IRA distribution on line 15 of your form 1040 tax return. You will receive a form 1099-R that shows how much of the distributions is taxable and how much is tax-free. The taxable portion is listed on line 15b, and the nontaxable portion is listed on line 15a. The early withdrawal penalty waiver does not exempt the distribution from income taxes.