SSDI & IRA Distributions Per 59 1/2

We have a 49 year old client that is going on SSDI. She was told that she could take from her IRA &/or 401(k)without having to pay the 10% early withdrawal penalty. I wasn’t able to tell her is that was true or not. Any thoughts? Thank you.



It is true in most cases, but an SSDI award may be based on different criteria than the IRA and 401k disability penalty exceptions. Therefore it is best to obtain a letter from client’s MD that client is disabled under the terms of Sec 72(m)(7) of the tax code, then provide a copy to the plan administrator or IRA custodian requesting that distributions accordingly be coded 3 in Box 7 of the 1099R. With the code 3 provided by the custodian rather than the client filing a 5329 to claim the disability exception, the IRS is much less likely to question the penalty waiver. 



Add new comment

Log in or register to post comments