Sec. 72t distributions

Submitted by Don Warnke on Sat, 2012-12-15 15:02

I have a client that started taking 72t distributions approx 3 yrs ago at age 52, within the last couple of months he has been approved for social security disability. We anticipated that he would have to continue distributions until age 59.5 however does the fact that he has been approved for social security disability give him an option to discontinue 72t distributions without having to pay penalty?



Submitted by Alan - IRA critic on Sat, 2012-12-15 20:11

  • Probably about 95% safe for him to stop or modify distributions. The reason it’s not 100% is that for SEPP purposes the taxpayer must be disabled according to the definition of Sec 72(m)(7) copied below:

 72(m)(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.

  • Client should get a letter from his MD certifying that he meets this definition of disability. He should then send a copy to the IRA custodian requesting that they code his 1099R with Code 3 (disability) from now on. If they agree, all the better, but if they don’t he should be safe enough to make his modification of the plan effective 1/1/2013 and claim his own disability exception on Form 5329. He does not have to do anything else.

 



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