Can I make penalty-free withdrawals from an IRA to buy medical insurance?
Losing your job is bad enough, but those problems can be compounded if your medical insurance disappears along with your paycheck. Since 1997, some workers who lose their jobs have been able to make penalty-free withdrawals from their Individual Retirement Account (IRA) to defray the cost of buying medical coverage. According to J.K. Lasser’s “Your Income Tax” (Macmillan General Reference), “After 1996, unemployed individuals who have received unemployment benefits under federal or state law for at least 12 weeks may make penalty-free IRA withdrawals to the extent of medical insurance premiums paid during the year. The withdrawals may be made in the year the 12-week unemployment test is met, or in the following year. However, the penalty exception does not apply to distributions made more than 60 days after the individual returns to the work force.” Self-employed persons — who are ineligible for unemployment benefits — now can also make penalty-free withdrawals from an IRA to pay the
