Should I Use my IRA to Pay my Parents’ Nursing Home Costs?
Can I pay for my parents’ nursing home cost with MY traditional IRA? Should I?
Yes, you can use any of your resources to pay for your parents’ support. The problem, however, in using your IRA for this purposes is that your withdrawals will be taxable. In addition, if you are younger than 59 1/2 you will be subject to a penalty for early withdrawal.
If you and your parents meet the necessary requirements, you may be able to treat your parent as a dependent and deduct their nursing home costs from your income as a medical expense. To qualify for such a deduction, you would have to pay for more than half your parents’ expenses and the cost, along with any other medical deductions you may have, must exceed your 10% of your adjusted gross income. If your parents do qualify as dependents, you might also be able to get a hardship waiver of the 10% early withdrawal penalty if you are under age 59 1/2.
So, for instance, if your income were $100,000 a year and you were paying $50,000 a year towards your parents’ nursing home costs and your own family’s medical costs uncovered by insurance totaled another $10,000 a year, you would be able to deduct $50,000 as medical expenses on your tax return: $60,000 (of medical expenses) – $10,000 ($100,000 x 10%) = $50,000. But this gets a bit circular if you use your IRA, since that would increase your adjusted gross income to $150,000, also increasing the 10% you cannot deduct from $10,000 to $15,000, meaning that you would only be able to deduct $45,000: $60,000 (of medical expenses) – $15,000 ($150,000 x 10%) = $45,000.