Disabled and want to cash out

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L1: Disabled and want to cash out
Iwas born 6/15/58, married, disabled since 2002, husband is unemployed and we need cash. I have a 401k worth about $300k. Will I have to pay the 10% penalty for withdrawing early?

2011-12-08 09:57, By: chc, IP: []

L2: Disabled and want to cash out
There is no penalty if you meet the definition of disability:
Q. What is the Definition of Disability for 72(t)??

A. The definition of disability can be found in IRC Section 72(m)(7). In one case,Dwyer v. Comm., 106 TC No. 18 (1996), the Tax Court agreed with the IRS and stated…

For purposes of this rule, an individual is considered 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 infinite duration.” The Code specifies that an individual must be able to furnish proof of his disability in whatever form and manner that the Service may require. The court noted that the regulations under Section 72 also state that an impairment that
is remediable does not constitute a disability.
If you are collecting SSD, that will usually be enough, but to provide better documentation, you should get a letter from your MD attesting that he considers you to meet the definition above. Then send a copy of your SSD check
and the MD letter to the 401k plan administrator requesting that your 1099R from the plan be coded with a “3” in Box 7. If the plan does not provide that code, then you need a Form 5329 with your tax return to show the exception code “03”.
The above suggestions are not all necessarily required, but each one of those actions will produce a lower chance of inquiries from the IRS.

2011-12-08 20:01, By: Alan S., IP: []