10 % exception on IRA distribution due to disability | Ed Slott and Company, LLC

10 % exception on IRA distribution due to disability

Client 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.

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.

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