I am medically retiring at 54. Can I take a partial withdrawal and avoid additional penalties ? If so what are the limits ? How do I approach this ?

[VolvoGirl]

Take a withdrawal from what?  401K, IRA or ??

[papajoe71]

Both in my tsp account

[papajoe71]

One account is 401k type the other is Roth

[dmertz · Accepted solution]

The definition of "disabled" for the purpose of the penalty exception, from the instructions for Form 5329:

Distributions due to total and permanent disability. You are considered disabled if you can furnish proof that you can’t do any substantial gainful activity because of your physical or mental condition. A medical determination that your condition can be expected to result in death or to be of long, continued, and indefinite duration must be made.

If you meet this definition of being disabled and the Form 1099-R does not have code 3, you'll need to use the code 03 exception on Form 5329 to claim this penalty exception.  Based on this and the documentation that you supply to the IRS, usually a doctor's statement, the IRS generally makes its own determination as to whether the distribution meets the standards for the disability exception to apply.

[papajoe71]

Thank you! How long does it take to make a determination ? Or do I remove what I need and then apply for tax time?

[dmertz]

I've never personally been involved in the process.  The Internal Revenue Manual instructs the examiner as follows:

The distribution was due to total and permanent disability. The TP may indicate this by attaching a Schedule R to his/her return containing a Statement of Permanent and Total Disability, or there is an indication that a statement was filed previously - Form 5329 Exception Code 03.

Unless your income was too high, your tax return would be including Schedule R to claim the Credit for Elderly or the Disabled.  The instructions for Schedule R instruct you to obtain a Physician's statement and keep it for your records.  Presumably you would provide the IRS with a copy of this statement if they question your eligibility for this exception.  So whether or not you file Schedule R, you need to obtain the physician's statement, but apparently only provide it to the IRS if they ask for it.

See Instructions for Schedule R, Part II:  <a rel="nofollow" target="_blank" href="https://www.irs.gov/pub/irs-pdf/i1040sr.pdf">https://www.irs.gov/pub/irs-pdf/i1040sr.pdf</a>

Still, if you don't file Schedule R, it might be worthwhile to paper-mail your tax return and include a copy of the physician's statement.  That would head off an IRS request for the statement.  If you include the statement, I would only do so the first year you claim this exception.

[papajoe71]

Thank you . It gets me in the right direction.