Father moving in repairs... 10% early dist penalty

A client needs to bring his father over to live with him due to his age and health.  There is a rollover account with plenty of money in it but the client is only 57.  The renovations needed to make the house usable I guess is a lot ($100K+... I didn't ask why so much).  There is already a personal loan in place and I don't know if you can call pulling that much out of a plan a hardship.  I've looked and there is no exception to the 10% early distribution penalty.  

Is it as cut and dry as that?  There is nothing he can do or say to be spared that added 10% for his noble effort caring for his elderly dad?  Roll out some of his rollover account to  somewhere and then pull what he needs without an early dist penalty from there?  Trying to think outside the box at this point.

Thanks

Might a bank’s loan (perhaps supported by a mortgage or second mortgage on the house) be more efficient than drawing on retirement savings?

I don't know his personal financial situation.  He has $900K in his rollover account.  I think he was thinking this was the easiest process... even thought he would be paying 20% in withholding.  I will let him know that the rules are what they are and unfortunately there is no getting around the 10% penalty.

Appreciate  your response.

If the participant’s father is the participant’s dependent, the participant might want his lawyer’s or certified public accountant’s advice about whether some expense gets the Internal Revenue Code § 72(t)(2)(B) exception for medical expenses.

And even if the participant’s father is not the participant’s dependent, the participant might want advice about whether up to $1,000 might get a § 72(t)(2)(I) exception as an emergency personal expense distribution.

http://uscode.house.gov/view.xhtml?req=(title:26 section:72 edition:prelim) OR (granuleid:USC-prelim-title26-section72)&f=treesort&edition=prelim&num=0&jumpTo=true

This is not advice to anyone.

Right on Peter.  How about 72(t)(2)(A)(iii)?

Usually, plans permit a distribution of rollover amounts at any time.  The distribution would be subject to tax so the 20% withholding is not necessarily a bad thing and, yes, unless an exception applies that distribution would be subject to the 10% premature withdrawal tax.  Peter seems to have covered the possible exceptions.  Don't think the 72t2Aiii exception would apply because it would cover the client's disability and not the father's, so the medical expense exception seems like the best possibility.  If the father is indeed disabled, it seems like there would be a very good chance he would be a dependent of your client's.  The father may qualify for a dependent if his gross income doesn't exceed $5,200 (2025) and the support the client provides exceeds the father's income.  Social Security doesn't generally count towards the father's gross income for this purpose but income generally does.  The client can count food, medical bills, living expenses as well as the fmv of the portion of the home the father occupies as part of the support he provides his father.   Medically necessary home improvements, e.g., ramps, wider doorways, bathroom modifications, etc. can be deductible under 213 if directly related to the medical condition and not just for general home improvement.  This should all be properly documented with letters from doctors, contractors, etc.  I believe that only the portion of the medically necessary expenses in excess 7.5% of the client's AGI would be able to escape the 10% tax but you should confirm.  Like Peter says, he should have his CPA/lawyer/financial advisor look at all of this.  

Internal Revenue Code of 1986 § 72(t)(2)(A)(iii) provides a nonapplication of the too-early tax for a “[d]istribution[] which [is] attributable to the employee’s [the participant’s] being disabled within the meaning of subsection [72](m)(7)[.]”

Although Basically’s story suggests some possibility that the participant’s father might be disabled, the story makes no mention of the participant’s disability.