10% Penalty/Disability
One of our clients took a disbursement in 2011 from his IRA. He was 54 years old in 2011, but was considered disabled in 2009.
The 1099R for 2011 is coded a “1.” Is the amount he disbursed in 2011 subject to the 10% early withdrawal penalty?
Thanks,
Bernie
Permalink Submitted by Alan Spross on Mon, 2012-03-05 17:12
If client meets the IRS definition for the disability exception, he should file Form 5329 and show exception code “03” on line 2 to eliminate the penalty. Here is the definition:
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Q. What is the Definition of Disability for 72(t)??
A. The definition of disability can be found in IRC Section 72(m)(7). In one case,Dwyer v. Comm., 106 TC No. 18 (1996), the Tax Court agreed with the IRS and stated…
For purposes of this rule, an individual is considered 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 infinite duration.” The Code specifies that an individual must be able to furnish proof of his disability in whatever form and manner that the Service may require. The court noted that the regulations under Section 72 also state that an impairment that is remediable does not constitute a disability.
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He might also ask the IRA custodian what documentation they require to change future coding to “3” on the 1099R. That would eliminate the need for Form 5329 and provide a firmer reason for the IRS not to question the exception.