questions on early withdrawals (due to disability) and amounts

Submitted by Al Ticineto on Thu, 2014-05-08 23:51

Hi all,

I turn 50 years old this month, and have been approved for social security disability (I am legally blind). In January, I plan on taking withdrawals from my IRA (I just rolled it over from my previous employer). I do have some questions:

I don’t want to just assume that because I am on social security disability that the IRS will automatically consider me disable as well and waive the 10 percent tax penalty. Should I contact them first before doing anything?

How do I figure out how much I should take each month from my IRA? Would I use the single life expectancy table? If I start in January 2015, would I use age 50 or 51 since my birthday won’t be until May?

Thanks in advance!

Al



Submitted by Alan - IRA critic on Fri, 2014-05-09 00:20

  • You can withdraw any amount you want to, but if you want to limit distributions to an amount that would generally allow the IRA to last for your life expectancy you could use the Table I divisor this year and then reduce that divisor by 1.0 for each year thereafter. That would be your RMD had you inherited this account, but again you can take out any amount you wish. Of course, the annual distribution will be fully taxable unless you have basis in your IRA documented on Form 8606.
  • With respect to the 10% penalty, being on SSD will usually be sufficient, but to make your penalty exception stronger you should have your MD provide you with a letter and along with your SSD determination submit this documentation to your IRA Custodian and request that they code all future distributions with Code 3 (Disability) in Box 7 of the 1099R. There should not be any questions if you get this coding. But should you get a 1099R that is coded 1 (early distribution) instead, you can still claim the penalty exception by attaching Form 5329 to your tax return showing exception code 03 on line 2 of the 5329. If you do this you should not have to contact or submit documentation to the IRS, but keep copies in your file just in case.

 

Submitted by Al Ticineto on Fri, 2014-05-09 00:26

Thanks Alan!  I appreciate it!

Submitted by William Tuttle on Fri, 2014-05-09 16:08

I would suggest a small change from Alan’s recomendation to treat distributions like an inherited account. That is the IRS having a guaranteed certain time to deplete the account.I would use the same table, but get the new factor from the table each year. It is a minor point, but would treat it as your account to adapt to your circumstances. Unless there is an underlying medical condition that caused the blindness or other factor(s) affecting longevity. 

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