Yes and No. You can only deduct medical expenses that exceed 7.5% of your adjusted gross income. So, the logic follows that if you use your IRA to pay for medical expenses, you will pay a penalty on the 7.5% equivalent. Here’s an example. Let’s say you had an adjusted gross income of $100,000 and you also had $25,000 in medical expenses. The first 7.5% of your income of $100,000, or $7,500, would incur an early withdrawal penalty of 10% or $750. The remaining medical expenses ($25,000 minus $7,500, or $17,500) would NOT incur a 10% penalty. Make sense?
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