When a major illness strikes, everything shifts. Suddenly, doctor visits, medications, and treatment plans become your daily reality. But behind the scenes, there’s another challenge that creeps in quietly: managing your finances.
I’ve walked this road with many clients — individuals facing cancer diagnoses, degenerative illnesses, and chronic health conditions. They weren’t just worried about hospital bills; they were worried about losing financial control, depleting retirement savings, and leaving their family without answers.
This guide is here to help you regain that control. Whether you’re facing an illness yourself or supporting a loved one, the decisions you make today around taxes, retirement accounts, insurance, and estate planning can ease your burden tomorrow.
In 2025, updates from the SECURE Act 2.0, the Inflation Reduction Act, and standard IRS thresholds give us powerful tools — if you know how to use them. Let’s walk through them together.
If your illness affects your household makeup — whether through caregiving, separation, or dependency status — your filing status may shift.
If someone is caring for you and you’re financially dependent on them, or vice versa, there may be opportunities for Head of Household filing or additional exemptions. Similarly, if your illness results in someone moving in or taking on care responsibilities, this affects how you report your return.
CPA Insight: “One client added her adult daughter as a caregiver. It not only allowed for HOH filing status but unlocked credits she didn’t know she qualified for.”
You can deduct unreimbursed medical expenses that exceed 7.5% of your Adjusted Gross Income (AGI). This includes:
Keep detailed records of every bill and mileage log.
You may qualify for:
A major illness may mean:
I recommend building (or rebuilding) a 3–6 month emergency fund using:
CPA Insight: “When a married couple I advised faced a sudden cancer diagnosis, we used their HSA and adjusted 401(k) contributions to free up cash without disrupting their long-term plan.”
If you're nearing 73, Required Minimum Distributions (RMDs) must begin from traditional IRAs and 401(k)s. However, if you’re facing significant medical expenses, strategic timing matters.
Under SECURE Act 2.0, individuals diagnosed with a terminal illness (expected to result in death within 84 months) may withdraw from retirement accounts without the 10% early withdrawal penalty, even if under age 59½.
You may need to pause contributions or restructure allocations for liquidity and reduced risk.
Check with HR — many employer plans offer short-term disability covering 60–70% of salary for 3–6 months. This can ease income pressure during treatment or recovery.
If you leave work due to illness, you have several options:
Review:
Client Example: A retired client with a Parkinson’s diagnosis discovered his life insurance included a chronic illness rider. That early payout helped cover three years of in-home care — a lifesaver, financially and emotionally.
A major illness is a wake-up call: if your estate plan isn’t ready, now’s the time.
You can gift up to $18,000 per person in 2025 without using your lifetime exemption. For clients aiming to transfer wealth during illness, timing and valuation are key.
Your AGI may spike due to lump-sum payouts or retirement plan distributions. Watch for:
You’ll need a backup plan for:
Consider:
If you travel for specialized care, make sure you:
Major illness can shake your world — but it doesn’t have to unravel your finances. The key is proactive planning, compassionate support, and a clear view of your options.
Here’s what I tell my clients: You don’t need to do everything at once. But you do need to start. We’ll make a plan, one step at a time.
This guide is intended for educational purposes only and does not constitute professional tax, legal, or financial advice. Readers should consult a qualified CPA or tax advisor regarding their individual circumstances. Figures and laws reflect 2025 updates and may change thereafter.