Announcement

Collapse
No announcement yet.

Exception to 10% Penalty on IRA Withdrawal

Collapse
X
 
  • Filter
  • Time
  • Show
Clear All
new posts

    Exception to 10% Penalty on IRA Withdrawal

    TP's wife has been out of work for 3 years now receiving non taxable disability benefits. I have been advised they are trying to get ssi disability benefits now as it appears she will not be going back to work. She is under 59 1/2 and took the lump sum to pay for bills as husband lost job for a few weeks. She did not use the money to pay medical expenses for her either as she has a good medical plan. Mutual fund coded it as a 1.. early distribution. I believe she should take the exception. Has anyone been in this situation? If so were the client to be audited what type of documentation would satisfy them as to her disability? I feel three years of not working could be reasonable proof..

    #2
    The meaning of disabled for purposes of the exception to the 10% early withdrawal penalty is defined in Code Section 72(m)(7) as follows: β€œFor 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.”

    Regulation Section 1.72-17A(f) defines the meaning of Section 72(m)(7) as follows:

    β€œ(f) MEANING OF DISABLED.

    (1) Section 72(m)(7) provides that 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. In determining whether an individual's impairment makes him unable to engage in any substantial gainful activity, primary consideration shall be given to the nature and severity of his impairment. Consideration shall also be given to other factors such as the individual's education, training, and work experience. The substantial gainful activity to which section 72(m)(7) refers is the activity, or a comparable activity, in which the individual customarily engaged prior to the arising of the disability or prior to retirement if the individual was retired at the time the disability arose.

    (2) Whether or not the impairment in a particular case constitutes a disability is to be determined with reference to all the facts in the case. The following are examples of impairments which would ordinarily be considered as preventing substantial gainful activity:

    (i) Loss of use of two limbs;

    (ii) Certain progressive diseases which have resulted in the physical loss or atrophy of a limb, such as diabetes, multiple sclerosis, or Buerger's disease;

    (iii) Diseases of the heart, lungs, or blood vessels which have resulted in major loss of heart or lung reserve as evidenced by X-ray, electrocardiogram, or other objective findings, so that despite medical treatment breathlessness, pain, or fatigue is produced on slight exertion, such as walking several blocks, using public transportation, or doing small chores;

    (iv) Cancer which is inoperable and progressive;

    (v) Damage to the brain or brain abnormality which has resulted in severe loss of judgment, intellect, orientation, or memory;

    (vi) Mental diseases (e.g. psychosis or severe psychoneurosis) requiring continued institutionalization or constant supervision of the individual;

    (vii) Loss or diminution of vision to the extent that the affected individual has a central visual acuity of no better than 20/200 in the better eye after best correction, or has a limitation in the fields of vision such that the widest diameter of the visual fields subtends an angle no greater than 20 degrees;

    (viii) Permanent and total loss of speech;

    (ix) Total deafness uncorrectible by a hearing aid.

    The existence of one or more of the impairments described in this subparagraph (or of an impairment of greater severity) will not, however, in and of itself always permit a finding that an individual is disabled as defined in section 72(m)(7). Any impairment, whether of lesser or greater severity, must be evaluated in terms of whether it does in fact prevent the individual from engaging in his customary or any comparable substantial gainful activity.

    (3) In order to meet the requirements of section 72(m)(7), an impairment must be expected either to continue for a long and indefinite period or to result in death. Ordinarily, a terminal illness because of disease or injury would result in disability. The term "indefinite" is used in the sense that it cannot reasonably be anticipated that the impairment will, in the foreseeable future, be so diminished as no longer to prevent substantial gainful activity. For example, an individual who suffers a bone fracture which prevents him from working for an extended period of time will not be considered disabled, if his recovery can be expected in the foreseeable future; if the fracture persistently fails to knit, the individual would ordinarily be considered disabled.

    (4) An impairment which is remediable does not constitute a disability within the meaning of section 72(m)(7). An individual will not be deemed disabled if, with reasonable effort and safety to himself, the impairment can be diminished to the extent that the individual will not be prevented by the impairment from engaging in his customary or any comparable substantial gainful activity.”

    Comment


      #3
      I had a client last year in the same situation but he was already retired. He got apporoved for SS dusability but not before he had to withdraw IRA money to pay medical bills. His pension was then reduced by the amount of disability apyments, furthering showing prrof of disability. I took the exception for him and if audited he will use his doctor's certification of his diability. Hope this helps you in making your determination. Cindy

      Comment

      Working...
      X