ADA Disabled - IRA withdrawl penalty

[Unregistered]

Client previously worked for the federal government. Client was deemed disabled via the American's with Disabilities act and the federal government is paying her tax free disability payments.

Client withdrew a significant amount from a federal "Thrift Savings Plan" in 2005. Client received a 1099 for the withdrawl. Question: Does taypayer's situation allow her to avoid the 10% early withdrawl penalty on the thrift savings plan? IRS publication 590 defines disabled as not able to perform any substantial gainful activity because of the condition. Client cannot work as a hospital RN - but is working for an insurance company. I keep getting caught up on the fact that the federal gov't is paying her disability payments.

[Chief]

Penalty on Early Distribution

You should review TB 13-3 for an excellent review of the 10% penalty on early distribution. It seems to me that since your client is receiving a disability pension there is no question that the penalty is not applied.

I have a new client coming in tomorrow who had several sizable withdrawals from his 401K plan. He's under 50 and used the distributions to start a self=employed business. He s going to pay tax plus 10% on these distributions. i