Pension early withdrawal penalty

timmaggie · ‎February 24, 2020

My husband is 52. He has been disabled since 2014. He took a total distribution from his pension in 2019. Can he claim the exemption for early withdrawal penalty because he is disabled or does that money have to go towards his disabitliy?

DianeC958 · ‎February 24, 2020

No, the money does not have to go towards his disability if he is permanently disabled. In order for him not to be charged the 10% penalty he has to meet this requirement of being disabled.

IRC § 72(t)(2)(A)(iii). The term “disabled” is defined as “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.

If his disability does not meet this requirement any of the withdrawal that was used to pay for unreimbursed medical expenses that exceed 7.5% of your total income qualifies to not have the 10% penalty charged on that amount.

Link to Retirement Topics on Early Distributions

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