Paying for health insurance in a divorce situation using tax favored investments
Good morning:
A question was posed where you have a couple going through a divorce and figuring out the most tax efficient way to pay for COBRA health insurance.
Flexible Spending Accounts: I’m not sure these can be used to fund and then use to pay the COBRA coverage as there was not a lot of information…if anyone has additional information, it would be greatly appreciated?
If the spouse has an IRA or retirement plan, could that be used to fund the COBRA and avoid the 10% ealry withdrawal penalty due to divorce?
Thank you for your help in advance!
Permalink Submitted by Alan - IRA critic on Wed, 2019-01-02 17:35
Insurance premiums including Cobra are not eligible FSA expenses. For IRA distributions, there is a penalty exception for all medical expenses including health premiums to the extent that such distributions exceed 10% of AGI. If any spouse is collecting UC, there is a separate penalty exception for IRA distributions to pay health insurance premiums that is NOT subject to the 10% floor. For a divorced spouse receiving a portion of other spouse’s 401k or 403b plan under a QDRO, all distributions regardless of reason directly from the 401k or 403b are penalty free.
Permalink Submitted by Brian Smith on Wed, 2019-01-02 18:50
Thank you Alan.