72t/Disability…….

L1: 72t/Disability…….58 year old client has recently had a stroke and may be able to start withdrawal from his IRA for reason of disability.He has applied for SS disability – it is uncertain if he will qualify. He needs to get some funds from his account before that determination is made however. Question – if he begins a 72T distribution and later is found to be disabled, can he discontinue it at that time or is he locked into the 5 year period the same as a non disabled person his age?2007-10-03 13:58, By: Ray, IP: [75.111.2.182]
L2: 72t/Disability…….It would be a shame to have to start a 72t at age 58. Consider whether the medical expense exception will allow him enough penalty free distributions to get him to age 59.5. This probably depends on the how complete his insurance coverage is for the total of his medical expenses for the year.
With respect to your question, a disability determination that meets the IRS requirements erases the 72t plan obligation from the effective date of the determination on and opens up the IRA to unlimited penalty free distributions thereafter. The problem with the SSA determination is that most of them take a couple years or more to conclude, and unless the MDs will sign a properly worded opinion, a client would be in limbo for several months. A stroke is not assumed to result in disability because there is such a wide variation of severity involved. Therefore, depending on the circumstances, it might be necessary to set up the 72t just in case it is needed if a favorable ruling is not forthcoming. The plan can then be aborted once the determination is made. It is very rare that the IRS would question a ruling by the SSA.2007-10-03 17:18, By: Alan S., IP: [24.116.165.60]

L2: 72t/Disability…….Expanding on Alan”s response —- Taxpayer may qualify for exceptions to the 10% penalty for Medical Expenses (in excess of 7.5% of AGI), health insurance for certain unemployed individuals, as well as for disability. From personal experience, it takes 6 months of disability before SS benefits begin. (By the way, after 2 years of SS disability, you qualify for Medicare, regardless of age.) You must apply for SS disability ASAP, not wait for the 6 months.
As Alan suggested, at age 58, it is advisable to try to use all means possible to get to 59 1/2 without using a SEPP 72-T plan, because without one you can make unlimited withdrawals from your IRA after reaching 59 1/2. With a plan, you are severally limited to your original calculated amount, and if aditional monies are withdrawn, you are hit with the 10% penalty RETROACTIVELY on all distributions taken cumulatively from the beginning until the date you “bust” the plan. There are too many situations that can come up that require additional funds, so try to borrow (from family or banks, refinance, use credit cards, etc.) before using a SEPP 72-T.2007-10-03 19:17, By: dlzallestaxes, IP: [141.151.79.175]