Call to IRS July 30, 2024 at 9am
- spoke to: Bill Nicholson
- badge #: 1000221205
Tiffany was declared permanently (”Her clinical symptoms are significant, progressive, not expected to improve and in combination are disabling”) disabled by her doctor several years ago for the purposes of qualifying for SSDI. She called the IRS to find out about the disability exception to the 10% penalty for IRA distributions before age 59.5.
Background given to Bill: In 2018 my neurologist wrote a letter saying that I have medical symptoms that “are significant, progressive, not expected to improve and in combination are disabling” for the purposes of qualifying for SSDI. I was awarded SSDI as a result.
Questions and answers
- With this letter, would I meet the IRS requirements for early distribution without the 10% penalty? (They may not be able to answer this one, but it would be worth asking anyway.)
- He answered that if I was ever audited I would need to be able to present this letter. Section 72M7 defines disability for IRS purposes. Bill read an article with some examples of what would meet the IRS definition, and multiple sclerosis was specifically named.
- Is there any time limit on when I must take a disbursement to avoid the penalty? My letter is dated from (2018), but I now have the need for some funds from my retirement account. (If you want…) I currently rent, but I am hoping to purchase a home to try to stabilize my housing costs. (If you say this, they may try to tell you about the $10,000 you can take for a first-time homebuyer. This one will not work for us, but you can just listen to what they have to say and move on.)
- There is no time limit on taking the penalty exception for disability. It can be taken any time after you have the documentation showing you are disabled.
- Is there any limit to the number of times I can take a disbursement without a penalty in the event I have further needs for disbursement in the future?
- If you are disabled as defined by the IRS definition, you can take as many distributions as needed before 59 1/2 without penalty. Multiple distributions in the same year are a single distribution in the IRS’s eyes, but you may even take distributions across multiple years if needed.
More info
- Form 5329 may need to be filed with tax return of disbursement year if disbursement code on 1099R is 1.
Call with Desmond Hudson (tax accountant) 2024-07-31
- Disbursement from traditional IRA is taxable as income
- PA state tax of 3.07% on any earnings withdrawn from any account