How to Pay Health Insurance Premiums With a 401(k)
Apply for unemployment once you have lost your job., Use the 401(k) for income if you are at least 55 years old., Roll over your employer 401(k) to an IRA., Set the money aside, so it can only be used for health insurance premiums., Pay taxes on the...
Step-by-Step Guide
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Step 1: Apply for unemployment once you have lost your job.
In order to pay for health insurance premiums with a retirement account, you will need to receive unemployment compensation for at least 12 weeks.
Consult your state and federal departments of labor to obtain the proper unemployment paperwork. -
Step 2: Use the 401(k) for income if you are at least 55 years old.
If you have become unemployed after the age of 55, you can take penalty-free retirement withdrawals from your employer's 401(k) for income purposes before you reach the age of
55.5.
Set up an annual distribution from your 401(k) account, in order to use the money in this way.
You will pay income tax on the money and you can use it to pay health insurance premiums.
These 72 (t) withdrawals must be taken for at least 5 years.
The amounts that you choose to receive are not adjustable after they are set. , You can sign up for a SEP, SIMPLE, Roth or traditional IRA, and roll over the 401(k) balance within 60 days of your employment termination.
You cannot withdraw money for insurance premiums directly from a 401(k).
IRA are more flexible investment accounts.
Make sure to go over the rules of your IRA with your investment consultant to ensure you understand how to withdraw funds and take loans on your IRA. , There are 2 ways to ensure that your IRA money can be used directly for health insurance premiums, thus avoiding the 10 percent early-withdrawal penalty.
Failure to keep the money separate will place you at higher risk for penalties.
Create a separate bank account for your insurance premiums.
Withdraw the exact amount of money that you pay each month from the IRA and place it in the new bank account.
Write checks or arrange a direct withdrawal from this account at the same time every month.
You will leave a paper trail that can prove the use of the money when it leaves your IRA and when it is paid to the health insurance company.
Write checks directly from your IRA to the health insurance company every month.
This is not available in all types of individual retirement accounts, so check if it is a possibility when you roll over.
The paper trail will also follow your IRA money directly to its use for health insurance. , Although you will not pay the 10 percent penalty placed on early withdrawal by the IRS, you will be taxed at the standard rate when you pay your income taxes.
Do not forget to report this withdrawal as part of your income. , This exemption is only allowed in the year that you accept unemployment compensation.
Stop withdrawals when you regain employment. -
Step 3: Roll over your employer 401(k) to an IRA.
-
Step 4: Set the money aside
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Step 5: so it can only be used for health insurance premiums.
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Step 6: Pay taxes on the money you have withdrawn.
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Step 7: Stop payment on all health insurance premiums from an IRA if you are no longer receiving unemployment.
Detailed Guide
In order to pay for health insurance premiums with a retirement account, you will need to receive unemployment compensation for at least 12 weeks.
Consult your state and federal departments of labor to obtain the proper unemployment paperwork.
If you have become unemployed after the age of 55, you can take penalty-free retirement withdrawals from your employer's 401(k) for income purposes before you reach the age of
55.5.
Set up an annual distribution from your 401(k) account, in order to use the money in this way.
You will pay income tax on the money and you can use it to pay health insurance premiums.
These 72 (t) withdrawals must be taken for at least 5 years.
The amounts that you choose to receive are not adjustable after they are set. , You can sign up for a SEP, SIMPLE, Roth or traditional IRA, and roll over the 401(k) balance within 60 days of your employment termination.
You cannot withdraw money for insurance premiums directly from a 401(k).
IRA are more flexible investment accounts.
Make sure to go over the rules of your IRA with your investment consultant to ensure you understand how to withdraw funds and take loans on your IRA. , There are 2 ways to ensure that your IRA money can be used directly for health insurance premiums, thus avoiding the 10 percent early-withdrawal penalty.
Failure to keep the money separate will place you at higher risk for penalties.
Create a separate bank account for your insurance premiums.
Withdraw the exact amount of money that you pay each month from the IRA and place it in the new bank account.
Write checks or arrange a direct withdrawal from this account at the same time every month.
You will leave a paper trail that can prove the use of the money when it leaves your IRA and when it is paid to the health insurance company.
Write checks directly from your IRA to the health insurance company every month.
This is not available in all types of individual retirement accounts, so check if it is a possibility when you roll over.
The paper trail will also follow your IRA money directly to its use for health insurance. , Although you will not pay the 10 percent penalty placed on early withdrawal by the IRS, you will be taxed at the standard rate when you pay your income taxes.
Do not forget to report this withdrawal as part of your income. , This exemption is only allowed in the year that you accept unemployment compensation.
Stop withdrawals when you regain employment.
About the Author
Samuel Murphy
Enthusiastic about teaching DIY projects techniques through clear, step-by-step guides.
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