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.
Permalink Submitted by Alan - IRA critic on Wed, 2015-06-03 18:29
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.