Retirement Health care premiums

I have a general question for retirement spending and tax planning.
Assume someone retires around age 50-55, with assets in a mix of taxable accounts, Roth accounts and tax deferred accounts.
If person has to pay health care premiums, my understanding is these would be considered "pre-tax" items- the premiums lower taxable income. I am curious how this works on three levels.
1) Assume a 72(t) is used to fund the early retirement including health care premiums, and some taxes are paid from the 72t. Is the entire 72t withdraw for the year taxable? Then at income tax time some of this is "returned" to tax payer because the health care premium lowered taxable income?
2) can the health care premiums get paid from a rollover IRA, prior to age 50, without tax or penalty (because the payments are for healthcare).
3) Is it better, worse, or indifferent to use monies in a taxable account to pay the health care premiums. There is a part of my mind suggesting the rollover IRA has never been taxed, and the health care premiums are not taxed, so that is best use of money. But if the tax return is where the tax savings is actually seen, might be a moot point where the premiums for health care are paid out of.
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jIM wrote:

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 1040. Unlike medical expense/itemized deductions, this isn't subject to any AGI floor, but you can only deduct premiums to the extent you have self-employment income. You'll still pay self-employment tax on the SE income, which isn't the case for health insurance paid through an employer. So it's not entirely "pretax" even for the self-employed. This is actually an improvement, just a few years ago health insurance wasn't fully deductible for the self-employed.
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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jIM wrote:

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 7.5% AGI, and it's still fully subject to ordinary tax.
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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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 $5800 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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