cancel
Showing results for 
Search instead for 
Did you mean: 
Highlighted
Level 1

Do i qualifiy to not be penalized on my 401k close out, due to being let go by my employer while on long term disability through them?

i needed and used the money to support my kids and pay household bills. i was not ever released from a doctors care to return to work. at that time i had already applied for social security but it had not yet been determined.

1 Best answer

Accepted Solutions
Level 1

Do i qualifiy to not be penalized on my 401k close out, due to being let go by my employer while on long term disability through them?

You may.  A disabled person can take distributions from both 401(k) plans and IRAs without being subject to the 10% early withdrawal penalty.  A disabled individual, for this purpose, is one that 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 indefinite duration.”

The IRS requires proof of disability for this penalty exemption. Substantiating documentation from a physician should be obtained.

After you have entered all of your 1099 R forms in to TurboTax, there are a series of questions asked to determine if you owe a penalty tax on an early withdrawal from a retirement account. Note that the penalty exclusion list is different for pension plans, 401ks and annuities than it is for IRAs.
1 Reply
Level 1

Do i qualifiy to not be penalized on my 401k close out, due to being let go by my employer while on long term disability through them?

You may.  A disabled person can take distributions from both 401(k) plans and IRAs without being subject to the 10% early withdrawal penalty.  A disabled individual, for this purpose, is one that 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 indefinite duration.”

The IRS requires proof of disability for this penalty exemption. Substantiating documentation from a physician should be obtained.

After you have entered all of your 1099 R forms in to TurboTax, there are a series of questions asked to determine if you owe a penalty tax on an early withdrawal from a retirement account. Note that the penalty exclusion list is different for pension plans, 401ks and annuities than it is for IRAs.