Tax Guru – Ker$tetter Letter

Helping real people win the tax game.

Early withdrawal penalty exceptions…

Posted by taxguru on April 2, 2008

Q:

Subject:  Early distribution of retirement funds

If one withdraws money from a retirement plan before turning 59 1/2 there’s a 10% penalty unless one of several exceptions is met.  One of the exceptions is disability of the participant.  Does the same exception apply if the participant’s spouse becomes disabled?  I’ve researched this but the only references I’ve found are to the disability of the participant.  If’s it’s possible could you refer me to the pertinent tax reference?  Thanks.

 

Thanks for your help.

A:

My reference sources also only mention the disability of the participant, with no mention of the exception applying to disability of any other family member.

If the withdrawn money is being used to cover excessive medical costs for the disabled spouse, some or all of it may be exempt from the 10% early withdrawal penalty under Exemption 05 on Form 5329.  Those medical costs can be for anyone in the family; not just the participant.

Good luck.

Kerry Kerstetter

 

Follow-Up:

Thanks for the help.  I was focusing so much on the disability exclusion I hadn’t thought about the excessive medical costs exclusion.  I don’t think it’ll apply in this case but it’s certainly worth checking into.

Thanks again.

 

 

 

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