Disabled when starting 72(q)
L1: Disabled when starting 72(q)I have a very strange situation I am trying to help one of my clients with, but I can”t seem to find the right answer. He is currently disabled and receiving SSDI payments. If we were to being making withdraws right now from an annuity he already owns, would the information I”ve read on IRS penalties be waived because he is disabled or do we still need to abide by 72q since he was disabled before we started taking distributions? Also, if it is waived, does that mean we can take out any amount we desire at any time without IRS penalty?
Lastly, if anyone knows, would these withdraws from an annuity be considered income for calculating SSDI payments or do they fall under investment earnings, which are not counted? Thanks in advance to anyone who can help -2008-06-28 07:06, By: Advisor, IP: [184.108.40.206]
L2: Disabled when starting 72(q)In the vast majority of cases SSDI recipients are home free and can freely claim the disability exception without a 72q plan. The following is copied from this site and applies equally to 72q:
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.>>>>>>>>> >>>>>>>>>>
However, just in caseyour client”s disability situation may not measure up, one thing he should do is get MD statementsaddressing the permanence of his condition and submit them to theannuity provider with a request for written confirmation that they will code the 1099R with the disability exception of “3” in Box 7. Lackingthat assurance, he might considertaking distributions that would fall into the 72qcalculation so he would have a plan to fall back on if the insurer resists. While unlikely, I mention this just in case his situation is borderline.
Annuity distributions are not earned income and will not trigger the earnings penalty on the SSDI. However, these distributions do increase his AGI and could thereforeresult in up to 85% of his SSDI to be included in his AGI. Distributions from the annuity will first come from earnings and that will also increase his AGI in comparison to later distributions.
2008-06-28 11:53, By: Alan S., IP: [220.127.116.11]