does disability exemption apply to spouse
Husband and wife file jointly. Husband becomes totally and permanently disabled. Wife is under age 59 and takes money from her IRA for income replacement and other related living expenses. Does Form 5329 penalty tax apply? A reference please?
Many thanks Ed!
Tony Novak
Permalink Submitted by Alan Spross on Mon, 2007-12-31 05:17
Tony,
Unfortuneatly, the disability exception only applies to the owner of the IRA, not to disability of a family member. Following are the appropriate code references in Sec 72t:
Sec 72(t)2 iii:
(iii) attributable to the employee’s being disabled within the meaning of subsection (m)(7),
(7) Meaning of disabled
For purposes of this section, an individual shall be considered to be disabled if he is unable to engage in any substantial gainful activity by reason 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. An individual shall not be considered to be disabled unless he furnishes proof of the existence thereof in such form and manner as the Secretary may require. [(8) Repealed. Pub. L. 97-248, title II, Sec. 236(b)(1), Sept. 3,
1982, 96 Stat. 510] [(9) Repealed. Pub. L. 98-369, div. A, title VII, Sec. 713(d)(1),
July 18, 1984, 98 Stat. 957]
Also, note that in IRS Pub 590, p 52 the disability exception only refers to “you”. Other exceptions that follow such as the medical and higher education exceptions specifically include family members. Inclusion of family members must be specific and is not automatic.
I agree that this seems rather tough, but the wife can use a 72t substantially equal payment plan to avoid the early withdrawal penalty. If these IRA distributions started in 2007, it may be possible to “back into” a 72t plan depending on the account balance and amount distributed during the year. If not, then the plan could start in 2008 and there would only be one year of penalty.