Tackling Medical Expenses

Feeling overwhelmed with sky-high medical bills? Navigating an illness along with your finances is a tough road many Americans have traveled. But there are a few things you can do to manage the situation.

• Understand your health insurance and what it will and won’t cover.
• Search for options for avoiding and managing medical debt.
• Read up on what Medicare and Medicaid offer for people with serious disabilities and chronic conditions.

If you’ve already spent a good chunk of your income on medical bills, you may qualify for some relief that may help you in the long run.

Tax Breaks

You qualify for tax breaks after you’ve spent 7.5 percent of your adjusted gross income on medical bills. First, calculate your adjusted gross income. If you’ve hit the 7.5 percent mark, you’ll qualify to:

• Receive an income tax deduction. (And save some money in the long run.)Any money spent on medical care that exceeds 7.5 percent of your adjusted gross income is deductible on your tax return. To secure a tax break on medical expenses, follow these instructions, and be sure to itemize your deductions.
• Take money from an IRA. (Get money now, without losing some of your hard-earned savings to penalties.) Once you spend more than 7.5 percent income on medical expenses, you’ll be able to withdraw money from an IRA to pay for any additional medical expenses without being hit with a 10 percent early withdrawal penalty. Just realize that even though you avoid any penalty, the funds you withdraw still will be taxable as ordinary income to you. You do not have to itemize your deductions to take advantage of this exception.

Hardship

Some 401(k) and 403(b) plans also may allow for a “hardship distribution” to pay for heavy and immediate financial needs such as medical expenses and funeral expenses. Hardship distributions are subject to ordinary income tax and may be subject to an early withdrawal penalty, depending on your circumstances. Check with your plan for specifics on what is available to you.