How to Withdraw Early From an IRA When Disabled

Internal Revenue Service rules govern individual retirement accounts, which offer tax breaks for those who take advantage of them. With a traditional IRA, contributions up to the annual limit are tax-deductible, and there's no tax on the account's earnings as your retirement savings accumulates. The IRS will penalize early withdrawals taken before age 59-1/2, however, and will levy tax on earnings whenever you withdraw funds. Under some conditions, including permanent and total disability, these early withdrawals are penalty-free.

Defining Disability

The IRS waives the 10 percent early withdrawal penalty from an IRA account if the account owner can show permanent, total disability. The IRS definition of this condition conforms fairly closely to that of the Social Security Administration, which sets conditions for the Social Security disability insurance program. Under the IRS statute, an individual is disabled if he's unable to engage in substantial gainful activity due to a physical or mental impairment, which is expected to result in death or to be of long duration.

Proving Disability

The IRS requires proof of a disability. In general, this means showing an opinion from at least one medical doctor that indicates you're unable to work, as well as any relevant test results and medical history. Showing approval for disability from Social Security -- or a judgment of permanent, total disability status from a state workers' compensation claim -- will support the case. If the IRS denies your claim of disability, you have the right to appeal by filing a written protest and requesting a conference.

Requesting a Withdrawal

If you are disabled, you may request an early withdrawal directly from the account custodian. This individual or company will report the withdrawal to the IRS on Form 1099-R. You must declare disability as grounds for a waiver of the 10 percent penalty by the IRS. The account manager will require documentation of your disability, which is subject to approval from the IRS. Normally all distributions from traditional IRAs are also subject to federal tax withholding of 10 percent, as well as state tax withholding if your state levies income tax on retirement accounts. Although the penalty may be waived, with a traditional IRA, income tax is still due on distributions.

Other Penalty-Free Withdrawals

The IRS rules also allow penalty-free withdrawals if you have unreimbursed medical expenses that amount to more than 10 percent of your adjusted gross income, if you are under 65, or more than 7.5 percent of your adjusted gross income if you are 65 or older. If you have a Roth IRA, which does not feature deductible contributions, there is no early-withdrawal penalty in any case if you've had the account open for at least five years, and there are no income taxes on distributions of original contributions or conversions into the account. If the account has been open for at least five years and you've reached age 59-1/2, there's no income tax on Roth contributions, conversions or earnings.

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