If your plan allows and you are an eligible public safety officer, you may exclude up to $3,000 from gross income distributions1 to pay for qualified health insurance premiums for yourself, your spouse and your dependents each tax year.
To qualify, you must:
Distributions must be from an eligible governmental defined contribution plan, including a 401(a), grandfathered 401(k), 403(a), 403(b) or 457(b) defined benefit plan.
Here’s who is eligible
Public Safety officers who served in an official capacity as:
How this benefits you
Because contributions to the plan and earnings have not been previously taxed, generally you must pay taxes on distributions from the plan. By choosing to take a distribution to pay for insurance premiums, you are able to take a tax deduction up to $3,000 on your income tax return and potentially save up to $750.2 Please consult with your tax provider for details.
How to take your distribution
Contact your Empower Retirement representative for the appropriate paperwork to set up this distribution so your insurance carrier is paid directly.
The $3,000 income tax exclusion is an aggregate amount within any tax year. Qualified health insurance premiums are premiums that cover eligible retired public safety officers and their spouses and dependents, as defined in Internal Revenue Code §152, by an accident and health plan such as medical, dental and vision or for qualified long-term care insurance. Premiums paid to a self-insured plan also qualify for the income tax exclusion.
Payment of insurance premiums must be made directly from the retirement plan to the provider of the accident or health insurance plan or qualified long-term care insurance plan.
Do I need to report this distribution when I file my taxes?
Yes. The plan must report this distribution as taxable income on IRS Form 1099-R. You may reduce your taxable income on your federal income tax return for the tax year in which the distribution was made.
When can I take this distribution?
You can request the distribution as soon as you have ended employment after reaching normal retirement age or due to being disabled as defined under your plan.
If I took an early retirement, do I become eligible when I reach my normal retirement age?
No. A public safety officer who retires early is not eligible to participate in this program.
What is the income tax exclusion if both my spouse and I are retired public safety officers?
If you’re both eligible retired public safety officers and meet all the federal requirements, you and your spouse are each allowed to exclude up to $3,000 from your federal taxable income for a family total up to $6,000.
Can I take a distribution of more than $3,000 from my account each year?
Yes. As permitted by the plan, you may take any amount out of your account as needed. However, you can only exclude $3,000 or the amount of your insurance premium — whichever is less. The amount excluded from your income can’t be used to claim a medical expense deduction.
Can my beneficiary continue these distributions if I pass away?
No. There are no survivor benefits. Should you pass away before your beneficiary, the beneficiary is not able to continue these tax-free distributions for insurance premiums.
1 For defined contribution plans, this is effective for distributions made after December 31, 2006.
2 Assumes a 25% federal income tax.