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Can Your Retirement Account Fund Your IVF Treatment?

Posted by Mindy Berkson on with 3 Comments

by Mindy Berkson, Lotus Blossom Consulting

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

It is possible to borrow from your retirement plan.  There are however important restrictions and rules to consider, no matter what type of plan you have.  First, you will have to apply for a loan from the account.  A loan from a 401(k) is called a “hardship withdrawal”; or an “unforeseeable emergency” from a 457 plan.  A further limitation is that you are not allowed to withdraw any earnings, but rather only your contributions.  Finally, if you take loans from a retirement plan before age 59 ½, you will have to pay an early withdrawal penalty of 10%, if you do not make arrangements to begin repayment of the loan within a certain timeframe. 

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.                                        

 Roth

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.

 Traditional

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. 

 Summary

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. 

Mindy Berkson founded Lotus Blossom Consulting (LBC) to help intended parents globally explore their options for biological families in the U.S.  Through strong strategic alliances, LBC Consultants bring together the unbiased resources and professionals necessary to accomplish the end family building goal and serve as a guide through the often stressful financial, physical and emotional demands of the infertility process.  For more information, please visit www.LotusBlossomConsulting.com  and/or www.TheInfertilityConsultant.com or call 312-854.7089 to schedule your complimentary consultation. 

Comments

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Kim Jan 9, 2012 11:57am

I work in hr and we do not offer any loan provisions on our 401k. We only offer hardship provisions. Hardships are not loans and can not be repaid. To pay medical bills is considered a hardship reason, but it has always been my understanding that you can not take a hardship for future medical expenses since copies of bills need to be submitted in order to have a hardship approved. I would need to check this with our TPA. You mention taxes that need to be paid very briefly, but just to really bring it home, most of my employees pay upwards from 20% in taxes. Also, for those people that do not want anyone to know why they are taking the withdrawal hardships may not be for them since copies of all bills and/or official paperwork Need to be submitted with a hardship. It is also out policy to have senior management approve all hardship requests.

Mindy Berkson Jan 9, 2012 3:47pm

Kim,
Not all 401k plans offer options for loans. In many cases one must formally petition either the employer or in the case of IRA accounts the individual managing institution. Thus I mentioned it is important to contact your HR department to inquire about your specific plan. I understand this may not be comfortable if one is not willing to reveal medical conditions. If one does receive approval to qualify for a healthcare loan, the amount you withdraw must be repaid to the account within a set timeframe. If one does not qualify for an approved healthcare loan, it is possible to borrow from the retirement account. However, the amount of funds, the penalties, and the payback period associated with the loan depend upon the type of loan and the the type of account being borrowed from.

Many fertility centers offer package pricing for services and these fees can be paid in advance of treatment so receipts are available.

In summary, I reiterate withdrawing from retirement accounts has many disadvantages and I always encourage my clients to explore other venues. My consultancy, Lotus Blossom Consulting (LBC) offers qualified recipients financing terms for surrogacy arrangements. These loans are available at 0% interest with terms up to 24 months. This unique opportunity has enabled many of my clients to finance the medical portion for IVF treatment though the fertility center, the surrogacy portion through LBC and most importantly negated the need to borrow from retirement accounts and ultimately enabled my clients to eliminate risking future financial security.

Jordan Peter Jan 17, 2012 6:27am

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