This relates to my CPA thread. If you are unemployed you can withdraw from an IRA penalty free funds to pay health insurance premiums like Cobra, for you and your immediate family(wife, kids). IRA only
not 401K however note, you can roll a 401K into an IRA penalty free and then take advantage of this.
I have checked with 2 CPA's(happen to be on my UCLA basketball message board) and both confirmed this is the case.
To be eligible you have to be unemployed, have to have been on unemployment insurance for at least 12 consecutive weeks, and you can only take the withdrawal in the same year or year after you were unemployed. You must stop withdrawals within 60 days of getting a new job.
To report to the IRS when filing you need form 5329 which is covered under IRS publication 590.
http://www.irs.gov/pub/irs-pdf/f5329.pdf link to form 5329
http://www.irs.gov/pub/irs-pdf/i5329.pdf link to instructions for form 5329 Note on form 5329 the exception you would be using is exception 7 which is on page 3 of the instructions sheet exception 07
http://www.irs.gov/pub/irs-pdf/p590.pdf link to publication 590 you need pages 54 and 55.
I figured this might be helpful to other folks, the withdrawal is still subject to taxes as ordinary income so when you file your 09 taxes you have to include the form 5329 to inform the IRS why it's not subject to penalty. I'm assuming if you're unemployed like me your income is reduced as it is so paying oridinary income tax on a few thousand dollars doesn't concern me, since it replenishes my savings.
Apparently some states may still levy a 2% penalty so if you have a CPA yourself you might want to ask that question before doing it. In my case I was told I can withdraw a lump sum in December for all my Cobra payments this year from June-Dec so I will get back around $3700 that can go back into my savings and will be taxed when I file my 09 taxes.
Personally this is a gold mine find for me I'd much rather be using my IRA penalty free than paying this out of savings, this will stretch my savings quite a bit it's going to save me over 500 a month.
FYI I've also been told by several people that it's very likely Obama will extend the Cobra 65% subsidy beyond November. As of now starting in December you have to pay the full amount but IF they extend that you will continue to only have to pay 35%. That saves me 1000 a month right now. If they don't extend it you can see where this IRA rule is huge, you can make the 100% payment and withdraw it from your IRA.
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