Early IRA Withdrawal and the Definition of Permanent & Total Disability

When a disability is permanent and you can no longer work, you have to rethink your long-term financial plans. The Internal Revenue Service offers some relief from the economic pressures by easing the restrictions on early withdrawals from IRAs. To get a waiver of the rules, you must be unable to work for the foreseeable future.

Early Withdrawal

You are supposed to leave money in a traditional IRA until you reach the age of 59 1/2. If you withdraw any funds from the account before this time, the IRS considers it an early distribution and usually imposes a 10 percent penalty tax on the money you take out. The penalty is added on top of paying income tax on the withdrawn funds. The IRS does make some exceptions to the penalty tax for traditional IRAs. One of these exceptions is when you become disabled.


For IRA purposes, you must furnish documentation from a physician as proof of disability in order to get the IRS to waive the 10 percent penalty tax on early withdrawals. You must be unable to engage in substantial gainful activity due to the disabling condition. This is a fancy way of saying you can no longer work enough to earn a living. Your physician must certify your disability will be long-term, of indefinite duration, and continuous, or that it is expected to lead to death.

Roth Withdrawals

Contributions to a Roth IRA are after-tax money and can be withdrawn at any time with no tax liability. The IRS considers any withdrawals you make to be contributed funds -- as opposed to earnings -- unless you take out more money than you have contributed since you opened the account. When you make an early withdrawal of investment earnings from a Roth IRA because you are disabled, however, the earnings are subject to ordinary income taxes. The good news is that the IRS will waive the 10 percent penalty tax if you are disabled.

Qualified Roth Distributions

A Roth IRA "qualified" distribution -- even a distribution of earnings -- is exempt from all income taxes. For a withdrawal from a Roth IRA to be qualified, the account must be at least five years old. If this five-year rule is satisfied, all withdrawals from a Roth IRA are qualified if you are completely and permanently disabled, even when you are not yet 59 1/2 years old. You not only won’t owe the 10 percent penalty tax, you won’t owe any income tax on the money you take out.

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