Will money taken out of a IRA for fertility treatment qualify as a medical expense & be exempt from penalties?

Question

I read that medical expenses that exceed 7.5% of your adjusted gross income are exempt from the 10% penalty. Can these expenses be any kind of medical expenses such as fertility treatment or do they have to be 'lifesaving' or more 'crucial' to preserving your own personal health type of expenses? Does it even matter or can they be any type of medical expense whatsoever? I assume the other 20% penalty always applies even if exempt from the 10% penalty. Is this correct? Help!!!

Answer 1

All the answers are good. I add that only the excess of your medical expenses over 7.5% of your AGI ( which will include the IRA withdrawal) will be exempt from the penalty. So if you have $100,000 income and $10,000 in medical expenses, you will be able to exempt up to $2,500 of your IRA withdrawal from the 10% penalty.

Answer 2

Yes, those would be usable to avoid the 10% penalty tax. Medical treatment need not be lifesaving or crucial to be deductible. It only needs to be needed to cure disease or injury or restore normal biological body function. Reproduction certaily qualifies as a normal biological body function as we wouldn't be here without it!

I'm not sure of what you are refering to as the "other 20% penalty" though. The withdrawals are taxed as ordinary income at your marginal tax rate, whatever that rate may be. There is no other 20% penalty. The distribution will be subject to withholding at 20% but you'll lump that in with all other withholding at filing time. Maybe that's what you're referring to?

If your marginal rate is higher than 20%, you'll need to set aside enough from the distribution to pay the tax due when you file. A safer bet would be to make a single estimated payment using Form 1040-ES or adjust your W-2 withholdings for the rest of the year to ensure enough tax is withheld to cover the added tax.

Answer 3

Any expenses which qualify for deduction on Schedule A will exempt you from the penalty. Since this is treatment for a medical condition, and not cosmetic, it should qualify. There is no other 20% penalty. You may be referring to the income tax. You will still owe income tax on the distribution, which will taxed at your regular rate.

Answer 4

You should be OK on not having to pay the 10% early withdrawal penalty, but will still have to pay normal income taxes on the withdrawal - and there isn't another 20% penalty, just income taxes at whatever your rate is for the year.

I assume you're doing IVF for it to be that much. Good luck. As a side note, I have 1-1/2 year old twin grandsons from IVF (2nd attempt) at Shady Grove IVF Center in MD. I wish you success.