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How to Pay for Health Care With a 401(k) Plan

Pay for Health Care With a 401(k) Plan

Facing an expensive medical bill? Believe it or not, you can pay for health care with a 401(k) plan.  This guide will show you how to pay for health care with a 401(k) Plan . But be careful. If you make a wrong choice, you can pay a ton in taxes. Done right, you can use your retirement savings to pay for medical expenses and avoid the related tax implications.

Understand the Rules of Withdrawing From Your 401(k).

One of the key considerations when withdrawing funds from your 401(k) plan is the taxation factor. Generally speaking, early withdrawals may be subject to a 10% penalty on top of regular income tax rates. Withdrawals for medical expenses must still comply with the plan’s rules in order to potentially qualify for penalty-free exceptions. It’s also important to check if your plan allows payments into a health savings account (HSA).

Using Your 401(k) for Health Care Will Trigger IRMAA

One aspect to be aware of is that when you withdraw from your 401(k) for medical expenses, this could trigger a Medicare Income-Related Monthly Adjustment Amount (IRMAA). IRMAA is an extra Medicare Part B or Part D premium payment people with high incomes must make. The amount you’ll pay will depend on your income and can range from $0 to roughly twice the regular monthly premium. It’s important to consider these costs before using your 401(k) funds for health care expenses. (That’s why we provide 401(h) plans!)

Utilize Direct Contributions to an HSA

If you are enrolled in a high-deductible health plan (HDHP) and contribute to an HSA account, you can direct funds from your 401(k) directly into your HSA instead of to your bank account. You’ll need to make sure that the amount being directed, after taxes and other contributions have been made is below the maximum contribution limit for HSAs ($3,550 for single coverage and $7,100 for family coverage). This will help you maximize any available tax deductions and plan for future medical expenses.

Consider Creating a 401(h) Plan.

For businesses who offer both traditional 401(k) and medical benefit plans, you can  pay for health care with a 401(k) Plan. This plan also allows employers to make contributions to an employee’s HSA as well as any other traditional medical benefits they may be offering. Because the contribution limit is linked with the contribution limits for the 401(k), this can provide employees with a greater opportunity to access funds to cover health care costs.

Who Should Pay for Health Care With a 401(k) Plan?

It can be beneficial for businesses with a moderate to large number of employees who need more than just the basic health benefits like those available in an HSA or other types of plan. Many employers have started to utilize 401(h) plans since it allows them to provide incremental coverage for their employees and make generous contributions from their own budgets. Companies that don’t offer enough coverage through traditional medical benefit plans may find a 401(h) plan is a great way to help cover more medical costs.

Are You Ready to Pay for Health Care With a 401(k) Plan?

We are one of the few providers of 401(h) plans in the country. Financial advisors don’t want to discuss this with you. They are more concerned with keeping your money under their management. We can help pay for your (or your loved one’s) health care while saving you a ton in taxes. Give us a call at 602-443-4888.



Founding attorney Paul Deloughery has been an attorney since 1998, became a Certified Family Wealth Advisor. He is also the founder of Sudden Wealth Protection Law.