Used IRA distributions to pay for COBRA premiums

[ashutoshsharmaindia]

I read this.

And also a similar question like this here.

I am using Turbo Tax Home and Business Desktop edition for Windows.

Had IRA distribution to pay off the COBRA for around 7 months during my unemployment in 2023. Which forms or place I can enter this information to avoid paying 10% penalty. I have provided the same reasoning to the company holding my IRA account and they didn't deducted any penalty or taxes when issuing my 1099-R.

[Opus 17]

When you enter the 1099-R, turbotax will ask if you have any special situations that qualify for a penalty exception. 

[MinhT1 · Accepted solution]

The early withdrawal form your IRA to pay for medical insurance premiums while unemployed is one of the exemptions from the early withdrawal penalty.

Please read this TurboTax Help article for more information.

In TurboTax, please follow these steps:

1. After you have entered all your forms 1099-R, on the summary page Review your 1099-R Info, click Continue 
2. Follow the interview until you arrive at the page titled Did you use your IRA to pay for any of these expenses?
3. Enter the amount of your Cobra premiums in the box next to Health insurance premiums while unemployed and click Continue
4. Your early withdrawal penalty will be waived.

[nsimmons189]

I do not see this listed- I see medical insurance but nothing regarding medical premiums.

[nsimmons189]

Correction I see medical expenses but not medical premiums

[dmertz]

Medical insurance premiums are medical expenses.  https://www.irs.gov/pub/irs-pdf/p502.pdf

[Opus 17]

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@ashutoshsharmaindia , look at this chart.

https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-exceptions-to-tax-o...

The bottom item says "medical insurance you paid for while unemployed, if you were unemployed for at least 12 weeks".  In the middle, there are two listings under Medical.  One says, "health insurance premiums paid while unemployed".  (I'm curious about why there are two different rules for medical insurance premiums that are basically the same but slightly different, I guess Congress was just mucking around with the tax code one day.)

However, also under medical it says "amount of unreimbursed medical expenses (>7.5% AGI)."

What this means is that money you withdrew to pay premiums is exempt from the penalty, but money you withdrew to pay other medical expenses (like prescriptions and co-pays) are only exempt after your total medical expenses exceed the 7.5% AGI threshold.   I presume Turbotax asks the right questions to figure this out. 

[ashutoshsharmaindia]

Problem is turbotax's quality has degraded. It is not asking right questions at right place.

[ashutoshsharmaindia]

Medical premiums paid is totally different than medical expenses(which has > 7.5% AGI test).

I checked with Turbo tax expert. If the 1099-R has 2 code then nothing else is needed out here.

IRS is not checking it any further. It all depends how the company(which holds your IRA) described in the 1099-R

[jbillz]

I am trying to take this exemption but Turbo tax never asks me this question.  It asks me many other questions about the IRA but not what I did with the distribution.  Is there a way to go directly to this question?

[VolvoGirl]

@jbillz   Are you over 59 1/2?  The exceptions are only if you have the 10% Early Withdrawal Penalty for under 59 1/2.  

[jbillz]

No I'm not.  Any other ideas?

It asked me lots of questions about my Basis and the existence of the IRA before 2019.  Perhaps that caused it to skip the questions.  I'm wondering if there is a way to make an adjustment directly to a Form where the IRA withdrawal penalty appears but I can't find it. 

[VolvoGirl]

Oh, what is the Code in box 7 on your 1099R?  It may be coded as an exception to the 10% Early Withdrawal Penalty.  @dmertz 

[dmertz]

Assuming no basis in nondeductible traditional IRA contributions, any part of the distribution not rolled over to a traditional qualified retirement account is taxable income.  The only question is whether or not that distribution is subject to an early distribution penalty.  If you are using the online version of TurboTax, you can go directly to Other Tax Situations -> See all uncommon tax situations -> Additional Tax Payments -> Extra Tax on Early Retirement Withdrawals.

[jbillz]

Thank you - I think this is the issue. This is the code on the 1099-R.

Early distribution from a Roth IRA, no known exception (in most cases, under age 59

Do I need to go back to Fidelity and have them change it or can I change it in Turbotax?

BTW - I'm using the Desktop edition so any help on where to adjust this would be appreciated.  

Thank you!