A Little-Known Strategy to Cover Retiree Medical Costs Without Tax Penalties

ARTICLE | February 03, 2026

If you own a small business with a defined benefit pension plan, you're likely planning for a comfortable retirement. But there's a hidden challenge that catches many business owners off guard: rising medical expenses that can significantly erode your retirement income with minimal tax relief. Most people don't realize that medical expenses are only deductible when they exceed 7.5% of your adjusted gross income, leaving many retirees unable to claim any tax benefits at all. Fortunately, there's a strategic solution that few business owners know about. By supplementing your defined benefit plan with a 401(h) arrangement, you can pay for qualified medical expenses with tax-free distributions, potentially saving thousands in taxes during your retirement years.

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