disability and 72t

L1: disability and 72tA client of mine just qualified for 100% disability from the veterans administration. Does this mean he can access his IRA accounts pre 59.5 without penalty without dealing with 72t guidelines? Also, who qualifies under disability? Total, partial ??? Thanks for your information.2007-08-24 09:04, By: shawn, IP: [151.198.150.252]
L2: disability and 72tHello Shawn:
The Internal Revenue Service uses its own definition of “disability”; which, roughly translated is “permanent & total disability” with respect tot he taxpayer”s pre-disability occupation. In all likelihood VA disability and IRS disability are very close if not the same thing. This is a facts & circumstances situation and if there is any question in your mind, I would seek further professional guidance.
As an example I have used: two brothers are in an auto accident resulting in both becoming parapelgic. One brother is a brain surgeon and the second brother is an NFL quarterback. The 1st brother is not disabled but the 2nd brother is.
TheBadger
wjstecker@wispertel.net
2007-08-24 17:51, By: TheBadger, IP: [72.42.67.164]

L2: disability and 72tAtt”d is copy of appropriate code section.
72(m)(7) MEANING OF DISABLED. –For purposes of this section, 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. An individual shall not be considered to be disabled unless he furnishes proof of the existence thereof in such form and manner as the Secretary may require.
Client will have some added protection if he sends the disability determination letter to his IRA custodian and gets confirmation that they will provide the disability exception coding for him on the 1099R. However, if the VA standards fall short of the code requirement, there could be a problem and I am not familiar with the definitions they use as opposed to the SSA for example.
2007-08-24 18:00, By: Alan S., IP: [24.116.165.60]

L2: disability and 72tShawn:
Definitely provideall disabilitydocumentation to the IRA custodian to determine acceptability, and that they will definitely provide the appropriate exception code. You don”t want your client relying on a Form 5329 to claim an exception that may not be acceptable to the IRS.
Let”s focus on part of the definition that Alan provided:”… an individual shall be considered to be disabled if he is unable to engage in any substantial gainful activity … ” Think “any occupation” as opposed to “own occupation.” Since your client has a VA disability, he must be a military veteran, and I will expand on TheBadger”s example. Let”s say your client was an Air Force pilot and lost an eye in combat. His flying days, or “own occupation,”are definitely over, but is he “unable to engage in any substantial gainful activity?” Very possibly not. Today, all Air Force pilots must have a college degree before receiving a military commission and going to flight school. So let”s assume his degree is Accounting (I thought of you, Bill), and he completed his CPA exams while recouping from the combat accident. His “own occupation” as a pilot is over, but his “any occupation” as a CPA is still viable.
Your client should take his VA disability paperwork to the Social Security Administration and apply for disability at that level also. If both provide a 100% determination, then he is probably going to be OK for disability distributions from the IRA. But, like I said earlier, make sure the IRA custodian will code the 1099-R for the disability distribution exception.
Jim2007-08-28 11:22, By: Jim, IP: [24.252.195.14]