Individual started 72t payments 8 yrs ago at age 50. approximately 2 yrs ago he qualified for social security disability which appears to allow him to stop recieving payments without penalty. How does he dertmine if he meets the criteria to stop payments prior to 59.5 without penalty?
Drawing SSD would almost always be enough to comply, although the requirements of the SSA for SSD are not identical to 72(m)(7). To be secure, the individual should get a letter from his MD that his disablity does meet the definition of 72(m)(7). The individual could then send a copy of this letter to the IRA custodian and request 1099R distribution coding to be changed to Code 3. If the individual distributed the correct 72t amount for 2017, he should have just filed as usual and added exception code 02 on Form 5329 if the 1099R showed Code 1. However, if the 2017 distribution deviated from the 72t plan, then he should consider filing the 5329 with exception code 03 instead of code 02 and also doing this in the future. But getting the MD letter and the 1099R coding would place him in a totally secure position instead of just reasonably secure.
Permalink Submitted by Alan - IRA critic on Fri, 2018-03-02 19:45
His disability must meet the requirements of Sec 72(m)(7). Given the circumstances, the individual would meet that requirement 2 years ago. He should attempt to get his 1099R coded 3 if possible, but if the custodian will not cooperate, he can just file the same 5329 form he is probably already filing to claim the SEPP exception, but show the disability exception instead. The 72t plan automatically terminates upon acquiring the disability exception.
Permalink Submitted by Don Warnke on Wed, 2018-03-07 17:19
You stated that he must meet the requirments of Sec 772(m)(7). If he is drawing social security disability do you know if the would meet the requirement? Also if he has already done his taxes would he need to wait until he does his taxes in 2019 before he took additional distributions above the 72t payment? His next 72t distribution is due in April.