Disabled participant.. wants to take the $ before retirement age... Penalties waived?

[K-t-F]

This may not be the right area since the client now has all her $ in an IRA... Its just that you guys are a wealth of knowledge... I figured you might know. I posted this post in the "IRA" area... not many replies... any thoughts.. anybody?

An old pension client of mine terminated her plan and rolled the $ into her IRA. She is on disability and doesn't think she will make it to retirement age before she dies. She asked me if I knew if she could withdrawn funds from her IRA without penalty since she is disabled. I admitted that I couldnt answer that question but would see what I could find out.

Is the answer dependent on the IRA?... or is there a definitive answer with regards to all IRAs?

Also, is there a # to call at the IRS?

Any help would be greatly appreciated!!

If I am not following proper board etiquette let me know and consider me "tought"

[Belgarath]

Depends upon what penalties you are talking about. There might be withdrawal charges or something. However, assuming you are talking about the 10% premature distribution penalties, one of the exceptions under 72(t) is for disability, within the meaning of subsection (m)(7).

[Lame Duck]

IRC Section 408(d)(1) provides that "any amount paid or distributed out of an individual retirement plan shall be included in gross income by the payee or the distributee, as the case may be, in the manner provided under section 72."

IRC Section 72(t)(1) provides that "If any taxpayer receives any amount from a qualified plan (as defined in section 4974©), the taxpayer's tax under this chapter for the taxable yerar in which such aomount is received shall be increased by an amount equal to 10 percent of the portion of such amount which is includible in gross income."

IRC Section 72(t)(2)(A)(iii) provides for an exception to the 10 percent additional tax for a dsitribution which is "attributable to the employee's being disabled within the meaning of subsection (m)(7)."

Subsection (m)(7) provides (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." Proof of the disability may have to be provided to the Secretary of the Treasury.

Finally, IRC Section 4974©(3) and (4) provide that the term qualified retirement plan includes an individual retirement account under Section 408(a) and an individual retirement annuity under 408(b).

Therefore, if your client meets the definition of disabled under 72(m)(7) distributions would not be subject to the 10% penalty.

If your client does not fall within the meaning of 72(m)(7) for some reason, distributions can still be made without penalty under 72(t)(2)(A)(iv) as a series of substantially equal periodic payments made over the life expectancy of the IRA holder or the joint lives of the IRA holder and a designated beneficiary.

[K-t-F]

Thank you both very much. I will pass on your knowledge to the client.