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Spouse is permanently disabled and receives SocSec. Her previous

employer 401 plan did not...
Spouse is permanently disabled and receives SocSec. Her previous employer 401 plan did not allow us to contribute because of her disability status. We rolled her 401 last year into Vangaurd Traditional IRA and we can now contribute if we wanted to.
However, I am ready to retire and collect partial pension from my company. My 401 is active. Question: Can we utilize her IRA to payoff our home mortage? Secondly, would the fact that she is permanently disabled exempt us from any early withdrawal penalties ?
We could live very comfortably with my pension and her social security. Making the Mortage Payment makes our budget Too Tight.
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12/2/2010
Robin D.
Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 15,887
Experience: 15years with H & R Block. Divisional leader, Instructor
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Hello and thank you for using Just Answer.

To discourage the use of IRAs for purposes other than normal retirement, the law imposes a 10% additional tax on certain early distributions of these funds. Early distributions are those you receive from a qualified retirement plan or deferred annuity contract before reaching age 59 1/2.

She can take the money out to pay off the mortgage.

There are exceptions to this 10% additional tax for early distributions that are:

  • made to a beneficiary or estate on account of the IRA owner's death
  • made on account of disability
  • made as part of a series of substantially equal periodic payments for your life (or life expectancy) or the joint lives (or joint life expectancies) of you and your designated beneficiary
  • made to pay for a qualified first-time home purchase
  • not in excess of your qualified higher education expenses
  • not in excess of certain medical insurance premiums paid while unemployed
  • not in excess of your unreimbursed medical expenses that are more than a certain percentage of your adjusted gross income
  • due to an IRS levy, or
  • A qualified reservist distribution

If her Form 1099-R does not have a distribution code "2", "3", or "4" in the box labeled "distribution code(s)", or if the code shown is incorrect, you must file Form 5329 to claim the exception.

 

I hope this information is helpful,

Robin D.
Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 15,887
Experience: 15years with H & R Block. Divisional leader, Instructor
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