Can I Take an Early Withdraw From My Pension for Hospital Bills?

If you have to pay for medical bills, you're allowed to make an early withdrawal from your pension without suffering a penalty if certain conditions are met.

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As long as your pension funds are vested, you can withdraw them at any time. However, the Internal Revenue Service penalizes early withdrawals from pension plans and other qualified retirement accounts by imposing a tax on most withdrawals made before age 59 1/2. Some exceptions to this tax exist, including withdrawals made to pay significant medical expenses.

About the Exception

To qualify for an exception to the penalty tax, the hospital bills you paid with your pension withdrawals must be deductible under the Internal Revenue Code. You qualify to deduct medical expenses, including hospital bills, only if the total of your expenses exceeds 7.5 percent of your adjusted gross income for the year. If you qualify for the deduction, only the amount you pay in excess of 7.5 percent of your adjusted gross income is deductible.


Assume you withdrew $2,000 from your pension to pay hospital bills during the tax year. If your total deductible medical expenses for the year were $3,000, the amount of your early withdrawal is less than your deductible medical expenses, so you don't need to pay any penalty tax. However, if your total deductible medical expenses were only $1,500, you must pay a 10 percent penalty tax on the remaining $500 of your early withdrawal.

Other Situations

Even if the hospital expenses you paid weren't tax deductible, you may still qualify for a penalty tax waiver if you meet the requirements for another exception. For example, if you are permanently and totally disabled, you can make early withdrawals for any reason, including medical expenses, without incurring a penalty tax. You are also exempt from the penalty tax if you are at least age 55 and no longer working for the employer who provided the pension.

Reporting Early Withdrawals

After making an early withdrawal, you will receive Form 1099-R, which indicates the amount of your withdrawal and whether you qualify for an exception from penalty tax. You must report all early pension withdrawals on Form 1040 regardless of whether you owe a penalty tax. If you owe a penalty tax, you may need to complete Form 5329 as well. You also may need to complete Form 5329 if you qualify for an exception from penalty tax that isn't listed on your copy of Form 1099-R.