Traditional IRA

Posts Tagged ‘ira disability early withdrawal’

What is the definition of ‘ Disability ‘ to avoid the 10% IRA early withdrawal penalty from an IRA (Traditional IRA or Roth IRA)?

If an individual becomes disabled before reaching age 59 �, amounts he/she withdraws from his/her IRA because of the disability are not subject to the 10% IRA early withdrawal penalty.

Under Internal Revenue Code Section 72(m)(7) an individual is considered disabled if he/she is:

1. Unable to engage in any substantial gainful activity because of any medically determinable physical or mental impairment which can be expected to result in death or to be of long continued and indefinite duration, and

2. Furnishes medical proof of his/her disability. The IRS has not indicated in what form or in what manner proof of the disability must be furnished. A disabled person should be prepared to support a claim of disability by medical testimony, etc.

A tax advisor, in conjunction with the individual’s doctor should determine whether the individual claiming disability IRA early withdrawal penalty exception has a disability.

By checking the disability box on the IRA distribution form, code # 3 will be generated in box 7 of your 1099-R telling the IRS that the you are taking an IRA distribution under the disability exception.

If a code # 3 does not appear on your 1099-R, the same affect can be achieved by you inserting code 03 on line 2 of Form 5329, Additional Taxes on Qualified Plans (Including IRAs). Form 5329 is then filed with your Form 1040 for the corresponding year.