Disability Exclusion

Submitted by Anthony Perrone on Tue, 2024-01-02 22:31

If a client applies for Disability in example October 2023, and is 58 years old and takes a distribution from an IRA account in January 2024 and gets approved for their disability in May 2024 do they still get the exclusion.

How about if they took the Distribution in December 2023 and get approved in March 2024 would they get the exclusion, being that its in a different tax year?



Submitted by Alan - IRA critic on Tue, 2024-01-02 23:57

  • To qualify for the penalty exception, the taxpayer must meet the definition of disability in Sec 72(M)(7), which is copied below. This can be documented by a letter from taxpayer’s MD stating that the client meets or has met the definition as of a date not later than the date of the IRA distribution. An SSD award is not required, but would remove all doubt if secured. If using an MD statement, the client would keep that statement and claim the penalty exception on Form 5329, code “03”. If the MD statement is secured, a copy could be sent to the IRA custodian requesting that they code the distribution 1099R with code 3 instead of code 1. That also adds to the credibility of the claim for exception because the IRS will give more credibility to a 1099R code issued by the custodian than a 5329 claimed by the taxpayer.
  • “(7)Meaning of disabledFor 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.”


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