Retirement, that long-awaited moment after a lifetime of work, shouldn’t be overshadowed by the anxiety of medical expenses.
Yet for many Americans, health-related costs are becoming one of the largest budget items.
According to Fidelity, a 65-year-old couple can expect to spend an average of $330,000 on health care during retirement, a figure that doesn’t even include long-term care.
In this context, proper management of your Individual Retirement Account (IRA) can make all the difference between serenity and financial stress.
The rising cost of healthcare
Even with Medicare, retirees face a significant share of uncovered costs: dental care, eyeglasses, hearing aids, home care, expensive drugs, even extended stays in nursing homes.
Added to this are potential expenses before the age of 65 for those who choose to retire early, a period during which private health insurance can cost more than $2,000 a month for a couple.
That’s why it’s essential to integrate health expenses into your retirement planning now, and understand how to mobilize your resources, including your IRA accounts.
What your IRA can do for your health
Individual Retirement Accounts (IRAs) aren’t just tools for long-term compounding; under certain conditions, they can be used to cover unexpected or planned medical expenses. Here are a few strategies to be aware of.
Penalty-free early withdrawal for medical expenses
Before the age of 59 and a half, any withdrawal from a Traditional IRA generally incurs a 10% penalty, in addition to income tax.
But there are exceptions, notably for unreimbursed medical expenses exceeding 7.5% of your Adjusted Gross Income (AGI).
So if you have significant health expenses, you can dip into your IRA without penalty, as long as you comply with the limits and reporting deadlines.
Payment of health insurance premiums in the event of unemployment
If you are unemployed and have received benefits for 12 consecutive weeks, you can also make IRA withdrawals to pay your health insurance premiums, without penalty.
This can be a vital way of preserving your medical coverage without depleting other savings.
Total and permanent disability
Another exception, if you are determined to be permanently unable to work, you can access your IRA funds without penalty, regardless of your age.
Social Security disability benefits can serve as official proof.
Plan for long-term care
One of the most costly pitfalls of retirement is long-term care. Medicare does not cover non-medical long-term care, such as extended stays in nursing homes or home health aides.
On average, a year’s private room care costs $127,000, according to Genworth Financial. Unless you’ve purchased dedicated insurance, which is often expensive, your IRA can become a solution of last resort.
Planning scheduled withdrawals or a partial conversion to a Roth IRA to anticipate these future expenses can help you avoid unpleasant tax surprises when you need it most.
The Roth advantage: Control your taxes and Medicare premiums
If you convert a portion of your Traditional IRA to a Roth IRA before age 63, you can reduce your future taxable income, and therefore your income-adjusted Medicare (Part B and D) premiums (Income-Related Monthly Adjustment Amount – IRMAA).
In fact, Roth IRA withdrawals are not considered taxable income, allowing for better tax management of your long-term healthcare expenses.
A well-planned conversion can therefore reduce your taxes and your healthcare expenses, while maintaining total flexibility over your withdrawals.
The IRA to HSA transfer: A one-off cost to be calculated carefully
Another little-known but effective strategy is the one-time transfer from an IRA to a Health Savings Account (HSA).
This operation, known as qualified HSA funding distribution, allows you to transfer up to $8,550 (in 2025 for family coverage) tax-free and penalty-free, provided you qualify for a high-deductible health plan.
This allows you to set up a fund dedicated to medical expenses, withdrawals from which are tax-free when used for medical purposes.
Note, however, that this is a once-in-a-lifetime maneuver, subject to strict conditions. The assistance of a financial advisor is essential.
Healthcare, retirement and strategy all in one
Health costs in retirement need not be a foregone conclusion. Intelligent planning of your Individual Retirement Accounts (IRAs) enables you to cope with the unexpected, optimize your tax situation and preserve the quality of your retirement.
By combining tools like Roth IRAs, HSAs, planned conversions, and a keen understanding of Medicare and Social Security rules, you can turn a potential obstacle into a security lever.
IRAs FAQs
An IRA (Individual Retirement Account) allows you to make tax-deferred investments to save money and provide financial security when you retire. There are different types of IRAs, the most common being a traditional one – in which contributions may be tax-deductible – and a Roth IRA, a personal savings plan where contributions are not tax deductible but earnings and withdrawals may be tax-free. When you add money to your IRA, this can be invested in a wide range of financial products, usually a portfolio based on bonds, stocks and mutual funds.
Yes. For conventional IRAs, one can get exposure to Gold by investing in Gold-focused securities, such as ETFs. In the case of a self-directed IRA (SDIRA), which offers the possibility of investing in alternative assets, Gold and precious metals are available. In such cases, the investment is based on holding physical Gold (or any other precious metals like Silver, Platinum or Palladium). When investing in a Gold IRA, you don’t keep the physical metal, but a custodian entity does.
They are different products, both designed to help individuals save for retirement. The 401(k) is sponsored by employers and is built by deducting contributions directly from the paycheck, which are usually matched by the employer. Decisions on investment are very limited. An IRA, meanwhile, is a plan that an individual opens with a financial institution and offers more investment options. Both systems are quite similar in terms of taxation as contributions are either made pre-tax or are tax-deductible. You don’t have to choose one or the other: even if you have a 401(k) plan, you may be able to put extra money aside in an IRA
The US Internal Revenue Service (IRS) doesn’t specifically give any requirements regarding minimum contributions to start and deposit in an IRA (it does, however, for conversions and withdrawals). Still, some brokers may require a minimum amount depending on the funds you would like to invest in. On the other hand, the IRS establishes a maximum amount that an individual can contribute to their IRA each year.
Investment volatility is an inherent risk to any portfolio, including an IRA. The more traditional IRAs – based on a portfolio made of stocks, bonds, or mutual funds – is subject to market fluctuations and can lead to potential losses over time. Having said that, IRAs are long-term investments (even over decades), and markets tend to rise beyond short-term corrections. Still, every investor should consider their risk tolerance and choose a portfolio that suits it. Stocks tend to be more volatile than bonds, and assets available in certain self-directed IRAs, such as precious metals or cryptocurrencies, can face extremely high volatility. Diversifying your IRA investments across asset classes, sectors and geographic regions is one way to protect it against market fluctuations that could threaten its health.