topic Do I file exemption from 10% penalty for early retirement withdrawal, since I'm on Social Security Disability? in Retirement tax questions

Do I file exemption from 10% penalty for early retirement withdrawal, since I'm on Social Security Disability?

lma7j7 — Thu, 16 Jul 2020 04:57:30 GMT

I'm 58 and took one-time distribution in Dec2019

Re: Do I file exemption from 10% penalty for early retirement withdrawal, since I'm on Social Sec...

DawnC — Thu, 16 Jul 2020 05:23:47 GMT

No, If you took a distribution from your 401(k) or another qualified retirement plan (excluding IRAs) before you turned 59 1/2, you'll pay a 10% early withdrawal penalty, with a few exceptions:

Death, or total and permanent disability - being on SS Disability does not qualify as a permanent disability
Qualified Domestic Relations Order
Series of substantially equal periodic payments based on life expectancy
Dividend pass through from an ESOP
IRS levy
Unreimbursed medical expenses that are more a certain amount of your adjusted gross income
Certain distributions to qualified military reservists called to active duty
Separation from Service if age requirement is met

Exceptions to Tax on Early Distributions - See this link for a full list of plans and exceptions allowed.

A person is permanently and totally disabled if both of the following apply:

He or she cannot engage in any substantial gainful activity because of a physical or mental condition, and
A doctor determines that the condition has lasted or can be expected to last continuously for at least a year or can lead to death.

This information is found in Publication 501, Dependents, Standard Deduction, and Filing Information.

Re: Do I file exemption from 10% penalty for early retirement withdrawal, since I'm on Social Sec...

dmertz — Thu, 16 Jul 2020 18:52:33 GMT

Adding to this, the SSA and the IRS make separate determinations regarding disability. Just because you are on SS disability doesn't necessarily mean that your circumstances qualify you for the disability exception to an early-distribution penalty. You must provide supporting documentation to the IRS to show that you meet the IRS's disability requirements that DawnC listed.

Re: Do I file exemption from 10% penalty for early retirement withdrawal, since I'm on Social Sec...

lma7j7 — Sat, 18 Jul 2020 21:43:22 GMT

Thank you. I do meet the requirements, so do I need to file a separate form?

Re: Do I file exemption from 10% penalty for early retirement withdrawal, since I'm on Social Sec...

dmertz — Sun, 19 Jul 2020 02:14:22 GMT

The exception can be claimed with code 03 on line 2 of Form 5329. TurboTax does this automatically when you indicate in the questions following clicking the Continue button on the Your 1099-R Entries page the amount that qualifies for this exception by entering it in the Permanent disability box.

As for the supporting documentation, you can either provide the letter from your doctor if the IRS questions your use of this exception or you can include that letter and explanation with your mailed tax return.