Roth IRA Early Distribution Due to Disability Questions

[Vocstra]

To whom it may concern,

            Hello. I’m in the process of filing my taxes and had to do a withdrawal from my Roth IRA. I’m trying to avoid the 10% penalty because I took the money before the actual time. It has come to my attention I need to provide a letter to the IRS stating my disability status to avoid the 10% penalty. I’m aware that this can all be avoided if the brokers of the Roth IRA put a particular code on my 1099-R. I haven’t received the 1099-R yet, but I read that it is incorrect a lot of the time. If that’s the case, that’s why I have a few questions below in regard to the matter. Please advise. Thank you for your time and help.

1. What code should be on my 1099-R? Once again, I’m permanent and totally disabled and withdrawing from my Roth IRA. I notice different codes being mention in the community when it comes to this similar situation. Also I have had the Roth IRA over 5 years.
2. It’s said online that a letter is need from a physician. If that’s true, am I able to upload that letter to TurboTax to do an electronic submission or do I have to print it out and mail it with my tax documentation?
3. If a letter is not needed, what form do I fill out. I heard it’s either Schedule R, Schedule 2, or Form 5329?

[ThomasM125]

The Form 1099-R should report the distribution from a ROTH IRA if early by using code "J" in box 7. I am not aware of another code that would exempt the distribution from an early withdrawal penalty.

The instructions to Form 5329, Additional Tax on Qualified Plans, mentions that you can exclude the 10% penalty on early pension plan distributions if you are permanently disabled and that a medical determination of that must be made. However, there is no mention of a need to file a copy of that determination with your tax return. It appears it will suffice to keep a written record of the determination in case you are audited on the matter at a later time. The determination letter you are referring to may be for the pension plan administrator to authorize the early distribution of funds to you.

You indicate that you are permanently disabled after you enter your Form 1099-R in TurboTax and on that basis Form 5329 will be populated and included with your Form 1040 when you file your tax return:

[Vocstra]

ThomasM125,

Thank you for that information. It was helpful and I will take note of everything use mentioned once I start to file my tax return. I will look out for that code J and have that letter from my physician saved in case I am audited as you mentioned.

[Vocstra]

ThomasM125,

Hey there. So, you put a snippet, I guessing from the instruction of Form 5329, in the reply. It was talking about the condition of permanent and totally disabled that's "long, continued, and indefinite." Does that little statement mean the disability has to be long, continued, and leads to indefinite? If they are separate, what is that time frame of that long and continue?

Here's me thinking deep and just curious what you think. What if someone is permanent and totally disabled and has been dipping into their Roth IRA or any other retirement account. Then in the future, something was developed and certain people that was considered permanent and totally disabled were able to work. Would these people be penalized when it comes to dipping in retirement accounts early years ago? Can someone be penalized later if situations change in the future when it comes to retirement, social security disability, and so forth? Maybe there's already an answer to what I'm asking.

For example, I seen that Tesla developed a chip called Neurolink and they put it in a gentleman's head and he is now able to control things with his mind on a computer. What if he is now able to get a small job. Another example would be if a job was developed for someone that has a permanent disability that didn't exist before, but the company  wanted to help people with a special program or something. Similar to a Walmart greater. They just say, "Hello," for a few hours and that's it. 

I was just think about all this and was curious to what you think. I did see Employee Tax Expert next to your name and figure you might have some insight or thought about this before. Anyway, thank you for your time and thoughts if you decide to reply to all that.