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My wife receives social security disability payments because…

My wife receives social...

My wife receives social security disability payments because she has type 1 diabetes. She has received these benefits since 2002. Is she eligible to pull money out of her IRA without the 10% penalty under the disability exemption? I realize she will need to pay taxes on the money withdrawn.

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3/19/2018
Barbara
Barbara, Enrolled Agent
Category: Tax
Satisfied Customers: 5,763
Experience: 20+ years of experience in tax preparation; 30+ years of experience as a real estate/corporate paralegal.
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Welcome to Just Answer. My name is ***** ***** I will be happy to assist you.

The exception to the 10% early withdrawal penalty is permitted in cases of total and permanent disability of the participant/IRA owner.

See the following IRS guidance:

https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-tax-on-early-distributions

Please let me know if I can assist you further.

Thank you and best regards,

Barb

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Customer reply replied 1 month ago
In your experience, is receiving SS Disability payments sufficient to meet the "total & permanently disabled" test?

Has she been declared totally and permanently disabled because of her condition?

I would assume so if she is receiving disability payments.

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A person is permanently and totally disabled if both 1 and 2 below apply.

1. He or she cannot engage in any substantial gainful activity because of a physical or mental condition.

2. A physician determines that the condition has lasted or can be expected to last continuously for at least a year or can lead to death.

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Customer reply replied 1 month ago
That's my question. I'm assuming since she has been receiving these payments for 15 years that she would meet the definition for the 10% exemption. It may be the case where she withdraws the money, claims the 10% penalty doesn't apply and then needs to be ready in case she is audited. I was hoping there was a precedent such that receiving SS disability payments would satisfy the IRS's definition - but my guess is we may just have to claim it and wait and see.

Does she meet the requirements that I provided?

1. He or she cannot engage in any substantial gainful activity because of a physical or mental condition.

2. A physician determines that the condition has lasted or can be expected to last continuously for at least a year or can lead to death.

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Collecting Social Security Disability in and of itself does not mean you are permanently and totally disabled.

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Customer reply replied 1 month ago
No on #1 and Yes on #2. She can engage in substantial gainful activity because of a physical or mental condition but her type 1 diabetes is permanent and has been with her for 30 years.

Substantial gainful activity such as work?

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Customer reply replied 1 month ago
she is working as a medical assistant with some accommodations. She started last year.

This is a close call.

Does she work full time or limited hours with some accommodations?

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Customer reply replied 1 month ago
She is paid hourly and generally works 30 - 35 hours a week. She does receive benefits so I believe she is categorized as an FTE and not a contract (per diem) worker.
Customer reply replied 1 month ago
with some accommodations.

Based on all of the information you provided, my opinion is that she does not meet the requirement that she cannot engage in any substantial gainful activity.

Barbara
Barbara, Enrolled Agent
Category: Tax
Satisfied Customers: 5,763
Experience: 20+ years of experience in tax preparation; 30+ years of experience as a real estate/corporate paralegal.
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Customer reply replied 1 month ago
OK. I was leaning that way as well but needed a second option. Thanks.

My pleasure. It certainly helped to "talk it out" here.

Thank YOU for the positive rating of my answer. It is very much appreciated.

Have a great day!

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