Withdrawing from 401k for parent's foreign medical bills - how to avoid penalties?

I need some advice about using my 401k for a family emergency. My dad is currently hospitalized in Mexico and we're having to cover all his medical expenses out of pocket. I'm looking at needing to withdraw around $40k from my 401k to pay for everything. Is there any way to do this without getting hit with the early withdrawal penalty? I've heard there might be hardship exemptions for medical situations, but I'm not sure if that applies when it's for a parent rather than myself. Also, would I be able to claim these medical expenses as a deduction when I file my taxes next year? Some additional info that might be relevant - I'm a US citizen. My father was a resident alien at one point but was deported back in the early 2000s due to some legal issues. He does have an SSN from when he was here, but obviously hasn't used it in about 20 years.

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22 comments

Brady Clean

•8M

You have a couple of options here. The IRS does allow for hardship withdrawals from 401k plans for certain situations, including medical expenses. However, there are some important details you need to know. First, while the SECURE Act expanded hardship withdrawal rules, the standard 10% early withdrawal penalty (if you're under 59½) still applies in most cases. However, there is a specific exception for unreimbursed medical expenses that exceed 7.5% of your adjusted gross income. Regarding your father's situation, you can claim medical expenses you pay for a dependent or qualifying relative. The challenge here might be establishing your father as a qualifying relative given his residency status. The IRS generally requires that the person be a US citizen, resident alien, or resident of Canada/Mexico with certain income limitations. For the tax deduction part, yes, you can potentially claim these as itemized deductions if your total medical expenses exceed 7.5% of your AGI. But remember, you'll need to itemize rather than take the standard deduction for this to benefit you.

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Brady Clean

•8M

Yes, you would still need to pay regular income tax on the withdrawal, as 401k contributions are typically pre-tax. The 10% penalty could potentially be avoided for the portion of your withdrawal that covers qualified medical expenses exceeding 7.5% of your AGI. The medical expense deduction is separate from the penalty exemption. If you itemize deductions rather than taking the standard deduction, you could potentially reduce your taxable income. However, this wouldn't directly offset the taxes on your 401k withdrawal - it would just lower your overall taxable income. For documentation of foreign medical expenses, keep detailed records of all bills, receipts, and payments. Request English translations if possible. You'll want official hospital documentation that clearly shows the patient information, services provided, dates, and costs. The IRS may scrutinize foreign medical expenses more closely, so thorough documentation is essential.

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Vincent Bimbach

•8M

I went through something similar last year when my mother needed emergency surgery in Colombia. I was overwhelmed trying to figure out all the tax implications while dealing with the stress of her medical situation. A friend recommended I try https://taxr.ai to analyze my specific situation, and it was incredibly helpful. I uploaded all her medical bills and my financial documents, and the AI analyzed everything and showed me exactly how much I could withdraw without penalties based on my AGI and which portions would qualify for the medical expense exception. It also calculated how itemizing these medical expenses would compare to my standard deduction. The best part was getting clarity on the documentation requirements for foreign medical expenses. I was worried about having documents in Spanish, but they explained exactly what I needed to translate and how to organize everything for potential IRS review.

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Vincent Bimbach

•8M

For relatives living abroad, the service checks if they qualify under the special support test for relatives not living with you. They need to be related to you in specific ways (parent qualifies), not have gross income over a certain amount, receive more than half their support from you, and not be anyone's qualifying child. For your mom in the Philippines, it would analyze whether she meets these tests despite not being a US resident. I didn't avoid the penalty completely, but significantly reduced it. Only the portion of medical expenses exceeding 7.5% of my AGI qualified for the exception. In my case, with an AGI of about $70k, only medical expenses beyond $5,250 were penalty-free. The system calculated exactly how much would be penalty-free versus what would still be subject to the 10% penalty.

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Kelsey Chin

•8M

I tried taxr.ai after seeing this comment, and it was exactly what I needed! I was in a similar situation with my mom's medical bills in the Philippines. The system analyzed her situation against the IRS qualifying relative tests and confirmed she could qualify despite living abroad. It calculated my AGI threshold for the medical expense exception and showed me that about 70% of my planned withdrawal would be exempt from the 10% penalty. It also generated a detailed report that explained all the documentation I should gather from the foreign hospital and which forms I'd need to file. The most helpful part was the side-by-side comparison of taking the withdrawal versus other options like a 401k loan. Ended up saving me thousands in unnecessary penalties! Definitely worth checking out if you're in a complicated situation like this.

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Leo McDonald

•8M

Another option you might consider is contacting the IRS directly to get official guidance on your specific situation. I know it sounds like a nightmare, but I used Claimyr (https://claimyr.com) to actually get through to a real person at the IRS when I had a similar situation. My brother needed surgery in Guatemala last year, and I was so confused about the tax implications of using my retirement funds. After trying to call the IRS for days with no luck, I found this service that actually gets you through to a real IRS agent quickly. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c I got connected to an IRS specialist who walked me through exactly what documentation I needed for the medical exception and how to report the withdrawal properly on my tax return. They confirmed that I could claim the medical expense exception even though the care was provided outside the US, which was a huge relief.

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Leo McDonald

•8M

The service uses an automated system that constantly redials and navigates the IRS phone tree until it reaches a representative. When someone answers, you get a call connecting you directly to that agent. It's basically doing the waiting for you instead of you having to sit on hold. They're not doing anything that gives special access - they're just automating the painful process of getting through the regular phone lines. I was skeptical too, but I was desperate after trying for days. They connected me within about 2 hours when I had been unable to get through at all on my own after multiple attempts and hours of hold time.

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Angelina Farar

•8M

I need to eat my words and apologize to Profile 9. After my skeptical comment, I was still desperate to talk to someone at the IRS about my audit situation, so I tried Claimyr as a last resort. I fully expected to waste my money. I'm shocked to report that they actually got me through to an IRS agent in about 90 minutes. After spending literally months trying to get through on my own with no success, I finally spoke with someone who helped resolve my case. The agent I spoke with also answered some questions about medical hardship withdrawals from retirement accounts (which I was curious about after reading this thread), and confirmed that foreign medical expenses for qualifying relatives can indeed be exempt from the 10% penalty if they meet the 7.5% AGI threshold. For anyone else struggling with complex tax situations like the original poster, being able to actually speak with an IRS representative made all the difference for me.

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Sebastián Stevens

•8M

Have you considered taking a loan from your 401k instead of a hardship withdrawal? Many plans allow you to borrow up to 50% of your vested balance (up to $50,000) without the tax consequences of a withdrawal. You'd have to pay it back with interest, but the interest goes back into your own account. This might be a better option if you're concerned about the penalties and tax hit from a withdrawal. The downside is that if you lose your job or can't repay it, the outstanding balance becomes a taxable distribution with potential penalties.

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Sebastián Stevens

•8M

Generally, 401k loans can be used for any purpose without restrictions or proof of how you'll use the money. Unlike hardship withdrawals, you typically don't need to provide documentation about medical expenses or other financial needs. The process is usually straightforward - you request the loan through your plan administrator, who will provide the repayment terms. Repayments are typically made through automatic payroll deductions, and the full amount usually needs to be repaid within 5 years. The interest rate is often prime rate plus 1-2%, but this varies by plan. One important note: if you leave your job for any reason, most plans require you to repay the entire outstanding balance quickly (often within 60-90 days). If you can't repay it, the remaining balance would be treated as a distribution, subject to taxes and potentially the 10% early withdrawal penalty.

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KingKongZilla

•8M

The IRS doesn't explicitly require certified translations, but they do expect documents in foreign languages to be translated. For audit protection, I'd recommend at least getting the major documents (hospital bills, doctor's statements) professionally translated. For minor receipts, you can probably do the translations yourself. When I submitted my mother's medical records from Peru, I had the main hospital discharge summary and invoices professionally translated, but did simple translations for the smaller pharmacy receipts. I included a signed statement that I had personally translated the minor documents accurately.

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Tyrone Johnson

•5M

I'm sorry to hear about your father's medical situation. This is definitely a complex scenario given the international aspect and his residency status. One important consideration that hasn't been fully addressed is whether your father would qualify as a "qualifying relative" for tax purposes. Since he was deported and hasn't been a US resident for about 20 years, this could impact both the medical expense deduction and the penalty exemption for the 401k withdrawal. For the qualifying relative test, the IRS requires that the person either be a US citizen, resident alien, or resident of Canada or Mexico. Since your father is in Mexico, he might still qualify under the Mexico provision, but you'd need to verify he meets all the other requirements (relationship test, gross income test, support test). Also, keep in mind that even if you qualify for the medical expense exception to avoid the 10% penalty, you'll still owe regular income tax on the entire withdrawal amount. And the medical expense deduction only helps if you itemize and your total medical expenses exceed 7.5% of your AGI. Given the complexity, I'd strongly recommend consulting with a tax professional who has experience with international medical expenses and retirement withdrawals. The potential tax savings from proper planning could easily offset the consultation cost. Document everything meticulously - hospital records, payment receipts, currency conversion rates, and any correspondence about your father's care. You'll want a clear paper trail if the IRS has questions later.

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Paloma Clark

•5M

This is really helpful advice, especially about the qualifying relative test for someone in Mexico. I didn't realize there might be a specific provision for Mexican residents. One thing I'm wondering about - you mentioned documenting currency conversion rates. How exactly does that work when you're paying medical bills in pesos? Do you use the exchange rate from the day you made each payment, or is there a standard rate the IRS expects you to use? Also, for the support test portion of qualifying relative, would the medical expenses I'm paying count toward providing more than half of his support, or do they look at his total living expenses throughout the year? The complexity of this is making me think a tax professional consultation might be worth it, but I'm trying to understand the basics first so I know what questions to ask.

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Lena Müller

•2M

Great questions! For currency conversion, the IRS generally expects you to use the exchange rate that was in effect on the date you made each payment. You can use rates from sources like xe.com, oanda.com, or the Federal Reserve's foreign exchange rates. Keep records of which rate you used and the source - screenshot the exchange rate page if possible. For the support test, medical expenses you pay absolutely count toward the support calculation. The IRS looks at the total support provided during the tax year, including medical care, food, housing, clothing, etc. If the medical bills you're covering represent more than half of his total support for the year, that would help satisfy the support test requirement. A practical tip: create a simple spreadsheet tracking all payments with dates, amounts in both currencies, exchange rates used, and what each payment covered. This will make everything much cleaner if you need to present it later. You're smart to understand the basics first - it'll make your consultation much more productive and cost-effective. The tax professional can then focus on the nuances of your specific situation rather than explaining fundamentals.

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Hailey O'Leary

•23d

I'm so sorry you're going through this difficult situation with your father. Having dealt with something similar when my aunt was hospitalized in Canada, I understand how overwhelming the financial and tax implications can be on top of the medical stress. One thing that might help is understanding the timeline requirements for hardship withdrawals. The IRS typically requires that the withdrawal be made in the same year as the medical expenses, or within a reasonable time after they're incurred. Since your father is currently hospitalized, this timing should work in your favor. Also, make sure to check if your 401k plan even allows hardship withdrawals - not all plans do, and each plan has its own specific rules about what documentation they require. Some plans have stricter requirements than what the IRS mandates. A few practical tips from my experience: - Keep detailed records of all payments, including any money transfers to Mexico - Get itemized bills from the hospital showing specific services and dates - Document the relationship between you and your father (birth certificate, etc.) - Save records of any insurance claims that were denied or not covered The loan option mentioned by others is definitely worth exploring first, as it avoids the immediate tax consequences entirely. Even if you end up needing to do a withdrawal later, having that loan option gives you more flexibility. Hang in there - the tax stuff is complicated but manageable with proper documentation and possibly professional help.

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