Disability 10% penalty exception apply?

L1: Disability 10% penalty exception apply?Male client age 53 is considering 72(t) substantially equal payments (SEPP)to supplement income. He is applying for disability with SS Admin. If disability is approved, can he at age 53, start taking (SEP) and avoid the 10% early withdrawl penalty? What is the IRS requirement to meet the Disability exception to the 10% penalty? Please provide source information. Thanks2006-01-06 14:56, By: Tom, IP: [68.90.147.132]
L2: Disability 10% penalty exception apply?Hello Tom:
Your client can start a SEPP plan immediately irrespective of his disability. Then, at some later date, if he is approved by the SSA for disability he may then ignore the SEPP plan and withdraw whatever amounts he so choses from his IRA without penalty.
Techncically, getting SSA disability benefits is not required in order to use the disabilty exception in IRC 72(t) in order to avoid the 10% usrtax; however, it is certainly the most persuasive. The IRS actually uses its own “disability” definition but I have never seen the IRS butt heads with the SSA on this issue.
Please see IRC 72(m)(7) and IRC Reg. 1.72-17A(f).
TheBadger
wjstecker@wispertel.net
2006-01-06 16:10, By: TheBadger, IP: [66.250.23.25]

L3: Disability 10% penalty exception apply?Hi Badger,
Thanks for your reply. I have a couple of questions after reading your response. Whether the SSA determines the client is disabled is still in question. Because of health limitations (bad knee), he has been unable to work much, and had to tap his retirement account in 2005 to supplement income. We’re trying to find a way to avoid the 10% penalty on the $50,000 withdrawn in 2005, and for 2006, determine what he could draw on the SEPP option if disability from SSA is denied. If denied by SSA, could he still possibly qualify for disability with regard to avoiding the 10% penalty with the IRS? If disability option doesn’t work, can he start the SEPP since he is age 53?
Thanks for your reply.
Tom
2006-01-06 16:26, By: Tom, IP: [68.90.147.132]