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Level 6

401k withdrawal for medical

Are 401k withdrawals for medical costs (i.e. actual or insurance) taxable? Non early withdrawal.

2 Replies
Level 20

401k withdrawal for medical

Yes, they are taxable.  Money in your 401(k) is deferred income.  The taxable amount of income from a 401(k) distribution does not depend in any way on what you spend the money on.  The taxable amount is the taxable amount no matter what you do with the money (other that roll it over to another qualified retirement account to continue to defer the income).

 

You might get a deduction for some portion of the amount of money that you spend out of pocket on medical expenses, but that doesn't depend on how the money came to be in your pocket (except that a 401(k) distribution will raise your AGI, lowering the amount of your potential medical expense deduction since only the amount of out-of-pocket medical expenses in excess of 10% of AGI can be deducted).

Level 6

401k withdrawal for medical

Thank you. Excellent reply. Exactly what I needed to know.