Can Your Retirement Account Fund Your IVF Treatment?
Posted on January 9, 2012
With more and more restrictions and lifetime limits being added to health insurance policies, the necessity to finance medical treatment has dramatically increased. Paying for medical costs that are not covered by your insurance plan often requires exploring financing plans that may be offered through your fertility center or identifying alternate borrowing options. Alternate borrowing options can include, but are not limited to, credit card loans, personal bank loans and/or borrowing from retirement accounts. But is it a good idea to borrow from your retirement plan?
Retirement Plans: 457/401(K)/403(b) and the like
If you are cleared to receive funds, the amount you withdraw essentially becomes a loan which must be repaid to the account, usually within 5 years. I always recommend that my clients discuss the specific parameters with their Human Resource department before choosing to borrow from existing retirement accounts.
Even though there are allowances for borrowing from retirement plans, this is not an avenue I encourage. Any cut in retirement savings today can have a potentially devastating effect many years later. It is imperative to also discuss any retirement account loan with your financial or tax advisor.
Individual Retirement Account: Roth and Traditional
Individual retirement accounts (IRA) also have provisions for withdrawals, and the same caveat about borrowing from a company funded retirement plan bears repeating here: even though there are allowances for borrowing from retirement plans, this should not be taken lightly, or taken advantage of merely because it is available. Distribution rules are different and somewhat complicated depending upon which type of account you have. Again, any cut in retirement savings today can have long-term, harmful consequences, so I always encourage my clients to speak with a financial or tax advisor before taking any money out of an individual retirement account.
You can take out contributions you have put into your Roth at any time tax free. In addition, you can withdraw any earnings by paying a 10% early withdrawal penalty. Although you might have to claim the earnings you withdrew on your income tax form, qualified distributions from a Roth IRA are tax free if you have owned it for 5 years or more. There are no requirements to pay back amounts withdrawn from this type of account.
A traditional IRA works similarly to a 401(k). Qualified distributions can be taken without penalty; otherwise the 10% early withdrawal tax applies. You have the option to pay back the amount you take out and avoid the penalty as long as it is returned to the account within 60 days, but you are not required to do so.
A final downside to note about taking funds out of either your company retirement account or your traditional IRA: on top of a 10% penalty, you will have to claim the amount you borrowed on your tax return, and pay at your ordinary income rate.
With so many restrictions and negative consequences associated with borrowing from retirement accounts, I always encourage my clients to explore other options that may suit their risk adversity in less punitive ways. A qualified Infertility Consultant should be able to lead you to other financing options that may be available. Of course these options may also change over time.
www.TheInfertilityConsultant.com or call 312-854.7089 to schedule your complimentary consultation.