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Tax Law (Questions About Taxes)/IRA funds to pay medical insurance premiums

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Question
John, thank you taking my question. My wife received unemployment benefits in 2011 and is just now (April 2, 2013)needing/wanting to use funds from her IRA (before retirement age) to pay health insurance premiums...can she do so without tax penalty? Similarly, can she roll IRA into a Roth IRA and then withdraw funds early (before retirement)to pay health insurance premiums? Thank you in advance for any guidance you can offer.

Answer
James,

Thanks for your question.

Distribution from an IRA to an unemployed individual to pay for health insurance after leaving a job if the individual has received unemployment compensation for 12 consecutive weeks is an exception to the 10% penalty.  You would still owe income tax on the distribution.

If you roll the IRA into a Roth, you will pay tax on the rollover.  Any withdrawals from a Roth are first considered principal, then earnings.  No tax or penalty on the withdrawal of principal.  But the Roth must be in place for five years to avoid a penalty unless an exception applies.

Hope this helps.

John Stancil, CPA

Tax Law (Questions About Taxes)

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John Stancil, CPA

Expertise

I can answer questions on personal income taxes, partnerships, and some corporate income taxes. I can deal with some state tax questions. Limited gift and estate tax questions. I am also familiar with ministerial and church tax reporting issues. I am Professor Emeritus at Florida Southern College. Sales taxes and property taxes are state and local issues so I am not likely be be able to give you an in depth answer on those types of taxes. I have maintained a CPA practice, specializing in tax, for over 35 years. I am a member of the National Association of Tax Professionals, The Florida Insititute of CPA's, The NCPE Fellowship. In addition I am a Certified Mentor for SCORE. Visit my website at www.mybaldcpa.com. I also offer seminars and consultations to churches and clergy on their tax issues at www.churchtaxsolutions.com Also visit my blog, www.thetaxdocspot.com. I am listed on Tax Connections at https://www.taxconnections.com/profile/John-Stancil/12258973 Prepare and file your own taxes at www.1040stancilcpa.com

Experience

I hold a doctorate in Accounting, and am a CPA. My certifications of CIA, CFM, and CMA are inactive. I passed all certification examinations on the first attempt, and received honorable mention for my scores on the CIA exam. I have operated a CPA firm for over 37 years and have taught accounting and tax at the college level for over 35 years.

Organizations
FICPA, NATP, NCPE Fellowship, Lakeland Business Leaders

Publications
The CPA Journal, Florida CPA Today, Green Consumer, Green Business, Global Sustainability as a Business Imperative, Palmetto Review, NATP TaxPro Quarterly, Mustang Journal of Finance and Accounting.

Education/Credentials
DBA University of Memphis MBA University of Georgia BS in Accounting Mars Hill University

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