Health care 401K withdrawals
A major local manufacturer is going out of business leaving employees without health insurance. Are there any exclusions of the 10% early withdrawal penalty? Where would be the best place to look for details? Thanks in advance!
Permalink Submitted by Clyde Wolf on Sat, 2008-09-13 20:45
Eebrown,
From your post, it sounds like the company will not be, the company has not been bought by another company.
The next question is what happens to your 401k? When you are let-go by the company, you could move your 401k funds to an IRA. Once the funds are in your IRA there are some exceptions to the 10% penalty:
– You are over age 59.5 years.
– Unreimbursed Medical Expenses.
– Medical Insurance.
– You become disabled.
– Higher education expenses.
– First time home buyer (limited to $10,000 and a 120 day time)
For more detail see IRS Pub 590, Individual Retirement Arrangements.
See Early Distributions begining on page 53: http://www.irs.gov/pub/irs-pdf/p590.pdf
Permalink Submitted by Eric Brown, MDRT - Court of the Table on Sat, 2008-09-13 20:54
Thanks for the heads up!!!!
Permalink Submitted by mk foss on Sat, 2008-09-13 21:58
One of the exceptions to the 10% penalty is a withdrawal to pay medical insurance premiums by an unemployed person.
Permalink Submitted by BruceM on Sun, 2008-09-14 19:50
There are a couple of conditions on one’s ability to withdraw from their TIRA for medical related expenses and avoid the 10% early withdrawal penalty if they are not yet 59.5.(IRC 72(t)(2)(D))
Withdrawals used to pay for unreimbursed qualified medical expenses must be for expenses that are in excess of 7.5% of their AGI for that year, although the individual need not itemize their deductions.
Withdrawals used to pay medical insurance premiums while unemployed will also be subject to the 7.5% of AGI threshold, unless the layed off worker has received unemployment compensation for 12 weeks or longer. This exception to the 10% penalty on withdrawals stops once the employee has been reemployed for 60 days.
BruceM