Medical IRA Rules
When you deposit money into an Individual Retirement Account, the money and investment earnings are supposed to stay there until you are 59 1/2 years old. The IRS normally tacks a 10 percent penalty tax onto early withdrawals on top of regular taxes. IRA medical rues do allow you to take money out of an IRA for certain health-care related expenses.
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Disability
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If you become permanently disabled and are no longer able to work, you can withdraw money from an IRA without incurring any tax penalty. In most cases you must pay taxes on the money you take out as ordinary income. However, if the account is a Roth IRA and it is at least five calendar years old, early withdrawal due to disability is considered a qualifying distribution and the money is exempt from income taxes.
Health Insurance
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If you lose your job, you may be able to withdraw money from an IRA without penalty to pay health insurance premiums. To qualify for this exception, you must receive unemployment benefits for at least 12 weeks. The amount you may withdraw penalty free is limited to the cost of the health insurance during the time you are unemployed. You must pay regular income taxes on the withdrawn funds.
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Medical Expenses
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When you or a member of your family has medical expenses that are not paid for by health insurance, you may be able to take out some money from an IRA to help pay them without penalty. You can only withdraw funds to cover unreimbursed medical costs in excess of 7.5 percent of your adjusted gross income. For example, if your AGI is $50,000 and you have $6,000 in unreimbursed medical costs, subtract 7.5 percent of your AGI from the $6,000. You can pay the remainder ($2,250) with money taken out of an IRA. Again, the withdrawn money is subject to ordinary income taxes.
Considerations
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Taking money out of your IRA early isn't a good option even if you don't have any choice. This is particularly true for Roth IRAs. Except for disability, early distributions from a Roth for health-related reasons do not count as qualifying distributions. That means you lose the tax-exempt benefit you would get by waiting until you are 59 1/2 to withdraw the money. An alternative you may want to consider is a Health Savings Account. Money contributed to a HAS is tax deductible. That money can then be sued for routine and major medical costs. If used for qualified medical costs, money taken from a HAS is tax-free, and unused funds accumulate from year to year.
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