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What is the tax law concerning IRA accounts. Do I contribute

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pre tax dollars to an...
What is the tax law concerning IRA accounts. Do I contribute pre tax dollars to an IRA? Can I withdrawal money for medical expenses tax free? I am interested in opening a HSA account with my employer but wonder if I would not just be better opening a IRA to have more flexibility with my money. Please inform me on the advantages and disadvantages.
Submitted: 7 years ago.Category: Tax
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Answered in 23 minutes by:
6/2/2010
Tax Professional: Merlo, Accountant replied 7 years ago
Merlo
Merlo, Accountant
Category: Tax
Satisfied Customers: 9,783
Experience: 25+ years tax consulting. Specializing in returns for US citizens living abroad
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Hello redtulips,

 

With a traditional IRA account, you can contribute up to $5,000 a year (or $6,000 if you are age 50 or older). The money you contribute is deducted from your taxable income for the year, so the funds you are contributing to the IRA are pre tax funds.

 

Once you put money in to an IRA account, it is always taxable when it is withdrawn, regardless of whether or not it is used for medical reasons or any other reason. There are absolutely no exceptions to that rule. In addition, if you are under the age of 59-1/2 when you make the withdrawal, then in addition to regular taxes you would also pay an early withdrawal penalty of 10%. For that reason, if you plan to use this money for medical bills this would not really be a viable option for you over opening the HSA account.

 

If this was helpful please press the Accept button. Positive feedback is also appreciated.

 

Thank you redtulips

 

 



Edited by Merlo on 6/2/2010 at 8:43 PM EST
Merlo
Merlo, Accountant
Category: Tax
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Experience: 25+ years tax consulting. Specializing in returns for US citizens living abroad
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