Medical expense deduction question

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Post Reply
Topic Author
cppoly
Posts: 63
Joined: Sat Jan 26, 2013 8:21 am

Medical expense deduction question

Post by cppoly »

For an upcoming medical expense, I have to use my 401k savings to pay for this cost. If I use $10,000 let's say from my 401k, am I allowed to include this money as part of the medical expense deduction when trying to figure out my total amount?

Side question, my 401k also includes roth funds. I have the option to select which funds to draw from (granted I know I will get a 10% tax penalty) but I'm assuming it makes the most sense to draw from the 401k and not from the roth right?
earlyout
Posts: 1432
Joined: Tue Feb 20, 2007 5:24 pm

Re: Medical expense deduction question

Post by earlyout »

The distribution from the regular 401k funds will be treated as regular income and subject to taxes (and a penalty). ( EDIT See next response, penalty may be waived.) It doesn't matter what the money is used for since dollars are fungible.

You mention you have the choice of using Roth or regular 401k funds. Whether to use Roth funds is a function of your overall tax situation. Do you want to minimize your tax bill now or do you want to let the Roth funds continue to grow tax free?

If this is a qualified medical expense it can be included in your total medical expenses but only that part of total medical expense that exceeds 7.5% of your AGI is deductible. Cosmetic and other purely elective surgeries usually are not qualified medical expenses -- see IRS Pub. 502.
Last edited by earlyout on Wed Jul 24, 2019 7:28 am, edited 1 time in total.
jebmke
Posts: 11465
Joined: Thu Apr 05, 2007 2:44 pm
Location: Delmarva Peninsula

Re: Medical expense deduction question

Post by jebmke »

from IRS Pub 575

an exception to the additional tax (penalty) on early distributions.
From a qualified retirement plan to the extent you
have deductible medical expenses that exceed 7.5%
of your adjusted gross income, whether or not you
itemize your deductions for the year,
When you discover that you are riding a dead horse, the best strategy is to dismount.
HomeStretch
Posts: 5000
Joined: Thu Dec 27, 2018 3:06 pm

Re: Medical expense deduction question

Post by HomeStretch »

If you prefer not to withdraw the entire $10k from your 401k, two other options are a 401k loan or a payment plan from your provider where you can cash flow the payments. If asked, some (many?) provider offices set up no-interest, multi-year payment plans.
Topic Author
cppoly
Posts: 63
Joined: Sat Jan 26, 2013 8:21 am

Re: Medical expense deduction question

Post by cppoly »

Thanks for responses.

Yea it is a medical expense. I can't find the definition of a "qualified medical expense" but it is something a medical doctor is determining would be beneficial to treat Lyme disease. Although it would be considered alternative treatment, and not something insurance recognizes. I'm assuming this would still be considered a qualified medical expense if I'm going through a medical doctor correct?
jebmke
Posts: 11465
Joined: Thu Apr 05, 2007 2:44 pm
Location: Delmarva Peninsula

Re: Medical expense deduction question

Post by jebmke »

cppoly wrote: Wed Jul 24, 2019 8:36 am Thanks for responses.

Yea it is a medical expense. I can't find the definition of a "qualified medical expense" but it is something a medical doctor is determining would be beneficial to treat Lyme disease. Although it would be considered alternative treatment, and not something insurance recognizes. I'm assuming this would still be considered a qualified medical expense if I'm going through a medical doctor correct?
I'd suggest looking at IRS Publication 502 - it has quite a bit on medical expenses.
When you discover that you are riding a dead horse, the best strategy is to dismount.
Topic Author
cppoly
Posts: 63
Joined: Sat Jan 26, 2013 8:21 am

Re: Medical expense deduction question

Post by cppoly »

I have a follow up question.

It looks like I can avoid a 10% hardship withdrawal penalty if:

"If you are under age 59½, the 10 percent penalty for early withdrawals from retirement plans is waived to the extent that you have qualifying medical expenses greater than 10 percent of your AGI. Even if you avoid the penalty, your withdrawals will be taxed as income"

Does this mean as long as my combined medical expenses (and not just for this ONE particular withdrawal) are greater than 10% of my AGI, that I'm not required to pay a 10% withdrawal penalty? If so, am I required to itemize my taxes to use the medical expense deduction OR is this a completely separate issue?
Topic Author
cppoly
Posts: 63
Joined: Sat Jan 26, 2013 8:21 am

Re: Medical expense deduction question

Post by cppoly »

Any help to this question?
User avatar
HueyLD
Posts: 7747
Joined: Mon Jan 14, 2008 10:30 am

Re: Medical expense deduction question

Post by HueyLD »

cppoly wrote: Fri Aug 02, 2019 9:47 am I have a follow up question.

It looks like I can avoid a 10% hardship withdrawal penalty if:

"If you are under age 59½, the 10 percent penalty for early withdrawals from retirement plans is waived to the extent that you have qualifying medical expenses greater than 10 percent of your AGI. Even if you avoid the penalty, your withdrawals will be taxed as income"

Does this mean as long as my combined medical expenses (and not just for this ONE particular withdrawal) are greater than 10% of my AGI, that I'm not required to pay a 10% withdrawal penalty? If so, am I required to itemize my taxes to use the medical expense deduction OR is this a completely separate issue?
The waiver of 10% penalty only applies to total medical expenses greater than 7.5% of your AGI. For example, your AGI is $100k and you withdraw $25k to cover TOTAL medical expenses. $17.5k of withdrawals will not incur the 10% penalty, but you still have to pay 10% penalty on $7,500 and pay regular income tax on the entire withdrawal of $25k.

And you do not have to itemize for this. You just have to fill out form 5329 https://www.irs.gov/pub/irs-pdf/f5329.pdf and enter the appropriate exception code. Of course you will need to have documentation to prove your claim should you be audited.
mhalley
Posts: 8433
Joined: Tue Nov 20, 2007 6:02 am

Re: Medical expense deduction question

Post by mhalley »

Medical advice is not allowed on this forum, but I have to warn you to be cautious in using alternative treatments for Lyme Disease. Especially if you can't actually afford them.
https://www.ncbi.nlm.nih.gov/pmc/articles/PMC4490322/
Our study illustrates that many “alternative” therapies are marketed to patients who either have persisting problems after initial antibiotic therapy for Lyme disease or who are suspected to harbor the pathogen. None of the examples cited above include treatments with demonstrated or even, in almost all cases, biologically plausible efficacy for B. burgdorferi infection.
Topic Author
cppoly
Posts: 63
Joined: Sat Jan 26, 2013 8:21 am

Re: Medical expense deduction question

Post by cppoly »

Thanks!
Post Reply