Submitted by jcobb@cobbfinan... on Thu, 2010-05-20 16:49 Forums: IRA Discussion ForumClient was diagnosed with cancer 3 months ago and is unable to work she is not 59 1/2. What is her tax obligation if she takes a distribution from her IRA. Re: 10 % exception on IRA distribution due to disability Permalink Submitted by firstname.lastname@example.org on Thu, 2010-05-20 18:07 The IRS will not rule as to whether someone is disabled or not - but the standard seems to be met in this case if the individual is unable to work. IRA distributions will be taxable, but the 10% penalty will not apply. Form 5329 would be attached to Form 1040 to eliminate the penalty if the 1099R is not coded properly. The custodian should enter a 3 in Box 7 to show that the distribution is made due to disability.