Retirement Health care premiums

Jim, health care premiums are truly pretax only when paid through your employer. If you pay them out of pocket, they land on Schedule A (Itemized Deductions) as a medical expense, which is a category that has a 7.5%-of-AGI floor. For many people, this makes them only partially deductible, or even not at all (e.g. if you still take the standard deduction).

If you have self-employment income (coaching as I recall?), and you aren't eligible to participate in a health plan through your spouse's employer, you can take an "above the line" deduction on line 29 of Form

So depending on your overall tax picture they may be fully deductible, or not at all. With just IRA income from 72(t) they'd go on Schedule A.

-Tad

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Actually, it doesn't work at all. The only time health insurance premiums would be fully deductible (pre-tax) is if they were provided under an employer plan, or if you are self-employed and not eligible to be covered under an employer plan for you or your spouse.

Otherwise, the best you can hope for is to deduct only the amount of premiums over 7.5% AGI, and only if you itemize deductions. Even medicare premiums paid out of Soc. Security, and High Deductible Health Plan (HDHP) premiums in conjunction with an HSA (Health Savings Account), are subject to these limits. Even the exception for early withdrawal penalties in an IRA to pay for health insurance is subject to

Where did you get the idea that there would be no tax on income used to pay health care insurance premiums? Perhaps some background would help to clarify the misunderstanding.

-Mark Bole

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Tad nailed it- I assumed because health care was pre-tax on my paycheck that is was pre-tax in retirement too.

That's why I ask questions, to make sure I understand what is (or is not) possible.

thx

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"jIM" wrote

I read this and thought maybe you were contemplating a strategy using a Health Savings Account, as follows:

1. Get a high deductible health insurance plan that qualifies under HSA rules.
2. Take money out of your Trad IRA for medical expenses, including health insurance premiums. You will meet the exception for no penalty. But so far, you are stuck paying taxes on the distribution, per line 15 of Form 1040.
3. Put money into Health Savings Account. For a family, currently up to 00 is deductible each year on line 25. This will cancel out some or all of the Trad IRA distribution you have to report as income, so the net effect is you pay no taxes on the distribution.
4. Also, one time only, a person can roll money directly from a Trad IRA to an HSA, limited to one year's maximum allowed HSA contribution.

The money you stowed in the HSA can be tapped after your Traditional IRA money is gone. You pay no taxes on HSA withdrawals, as long as they are for qualified medical expenses. You can invest in the HSA any way you want.

I would check the IRS rules further before doing this. Or no doubt someone here might poke a hole in it.

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Elle wrote: [...]

Only for the amount above 7.5% of AGI.

Good point. Still doesn't help with health insurance premiums, though.

-Mark Bole

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Assuming unreimbursed medical expenses exceed 7.5% of AGI, then you mean there is no penalty on that part of the Trad IRA distribution equal to [Actual Med Expenses - 7.5% AGI].

Or put another way, a 10% penalty is imposed on [TIRA distribution - (Actual Med expenses - 7.5% AGI)].

If this is what you meant, you are right. I could not figure out what you were saying without laying it out like this.

And to be clear (not to you, since I think you know this, but for the archives), one does not have to be able to itemize deductions to use this exception to the penalty rule for early IRA distributions.

You are right, though I expect with kids the dental and other medical costs could add up, though.

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