Roth IRA Withdrawals for health insurance premiums while unemployed
Hi,
I have a client that is 54. He has been unemployed for 3 months and is paying $2k/mo. for medical premiums. He may want to take a Roth IRA distribution to pay for premiums. His Roth IRA is worth $8,000. His contributions total $1,000 and earnings is $7,000. My understanding is he can take his $1,000 of contributions out tax and penalty free and then the earnings can come out penalty free (avoiding 10% Federal penalty, not sure if CA also waives there 2.5% state penalty) to pay for his health insurance premiums while unemployed but the earnings on the Roth IRA distributions would still be subject to income taxes since he is under 59.5, correct?
Permalink Submitted by Alan - IRA critic on Thu, 2024-08-01 15:39
Yes, correct. The penalty waiver is claimed on Form 5329, exception code “07”. Not sure if CA law differs from federal or not.
The income tax for the Roth distribution must be reported on Form 8606, showing the regular Roth contribution basis of 1000 on line 22.
Even if he drains the Roth IRA, his first year of contribution is still valid with respect to the 5 year holding period.