Question:
Has anyone used theur 401k to pay for surgery?

My insurance has denied benifits due to exclusion, even though its very much medically necessary care. I need this surgery, bad. Has anyone used their 401k to pay for it. If so, how do you go about getting it? Any help would be great. Thank you    — Donald W. (posted on May 3, 2001)

May 2, 2001
Donald, although I haven't done this, I can offer a little help here. Depending on your plan, you will have 2 options. 1)Withdraw the amount you need--be prepared to pay income tax at your rate + a 10% penalty next year--payroll will usually hold out 20% so be sure to figure that extra 20% into your amount. 2)Take a loan out against your 401k. If your company has such a plan, this is the best option. You are allowed to take up to 50% of your vested balance (the amount you would get right now if you quit or retired) out as a loan. Interest is charged, but it is paid back into your 401k account. Payments are deducted automatically from your paycheck. The best place to start would be your payroll department. They would be able to tell you what your options are. Good luck!!! (((((HUGS)))))
   — Sharon N.

May 3, 2001
Those having to self-pay may also be interested to know that federal tax guidelines have changed for weight-loss surgery. Your expenses related to the surgery may not be tax deductible. Go to: http://www.obesity.org/taxguide.htm. New Federal Tax Guideline for 2000 A Taxpayer's Guide on IRS Policy to Deduct Weight Control Treatment. The Internal Revenue Service (IRS) has changed its policy regarding how taxpayers may deduct the costs of weight loss/ weight control programs. AOA interprets "weight-loss programs" to include bariatric surgery.
   — Kristy J.

May 3, 2001
Donald, I had looked into taking my 401 money at one point. The company wanted a form from the Dr. stating medical necessity and a letter from me stating I had nowhere else to obtain the funds. I ended up getting it covered through my wifes insurance. As far as tax deductions I am pretty sure the new law lets you itemize the surgery under your medical expenses. Keep in mind that you would only be able to write off like 7% of the cost not the entire amount. You might want to check with an accountant to be sure. Good luck with whatever you decide.
   — Barry R.

May 9, 2001
Hi Donald, We have a loan against our 401K when we needed to buy a car. We had no other option at the time. The money comes directly out of hubby's paycheck to pay it back. The only thing to be careful of is the monies that can be lost against this account during this time. We are young enough that we felt we would have plenty of time to make it back. Good luck. Also, we have itemized for years our medical bills including transportation. Our accoutant has handled this for us. It's legit and above board.
   — Linda M.

May 9, 2001
When I did my taxes with Quicken, I learned that you do not pay penalties or taxes on early withdrawals for medical expenses. Hope I did them right (that's why I'm posting anonymously!), but perhaps one of our accountant members can clarify this.
   — [Anonymous]

July 17, 2001
Anytime you withdraw money from a qualified 401(k) plan before the age 59.5 normally there would be a 10% penalty on the taxable portion. Also if the money was put into the plan on before tax basis the administrator is required by federal law to withhold 20% of the taxable portion. Please understand there could be additional taxes at tax time based on your own tax bracket.
   — Beth F.

August 17, 2001
Yes, I used our 401k... All I had to do was call the 800 benefits number (get that from your HR people) and applied over the phone. They sent me the form (promisory note) I signed it and sent it back overnight mail. Within 2 weeks I had a check. I borrowed $12,000 at 6.7% interest for 5 years, no pre-payment penalty. Payments will run $217 per month. Good Luck! (Hey, the stock market is in the tank right now, so at least the $12,000 I borrowed is getting 6.75% interest!!!) The interest goes back into your own account.
   — Helena R.