If you are totally and permanently disabled, you can withdraw money from your IRA before age 59½ without paying the usual 10% early distribution penalty. This is the IRA disability exception, written into Internal Revenue Code §72(t)(2)(A)(iii), and it applies to Traditional, Roth, SEP, and SIMPLE IRAs. The catch is that the IRS definition of disabled is stricter than you probably think, and claiming the exception correctly on your tax return matters as much as qualifying for it.
Who the IRS Considers Disabled
The definition that controls comes from IRC §72(m)(7). You qualify if you cannot engage in any substantial gainful activity because of a medically determinable physical or mental impairment that is expected to result in death or to last for a long, continuous, and indefinite period.1Office of the Law Revision Counsel. 26 U.S.C. 72 – Annuities; Certain Proceeds of Endowment and Life Insurance Contracts Each phrase matters.
“Any substantial gainful activity” is the hardest piece. Being unable to do your previous job is not enough. If your condition still allows you to do some other kind of meaningful paid work, the exception does not apply.
“Medically determinable” means a physician can identify and document the impairment through clinical findings, not just your description of symptoms. And the duration requirement rules out temporary conditions. A broken leg, a surgery with an expected recovery, or a treatable illness with a clear timeline will not qualify, no matter how disabling it is at the moment.
The Documentation You Need
The statute requires you to furnish proof of disability in the form the Secretary requires.1Office of the Law Revision Counsel. 26 U.S.C. 72 – Annuities; Certain Proceeds of Endowment and Life Insurance Contracts In practice, that means a written statement from your physician that addresses each piece of the definition:
- Your specific diagnosis, identified through medical testing or clinical examination.
- That the condition prevents you from performing any substantial gainful activity, not just your prior occupation.
- That the impairment is expected to result in death or to last continuously for at least 12 months or longer, with no foreseeable endpoint.
You do not send this to the IRS or to your IRA custodian. You keep it in your own files. If your return is examined and you cannot produce it, the 10% penalty is assessed retroactively with interest. The disability must exist at the time of the distribution, not develop later. And per IRS Publication 590-B, a physician cannot certify their own disability.2Internal Revenue Service. Publication 590-B – Distributions from Individual Retirement Arrangements (IRAs)
If the Department of Veterans Affairs has certified you as permanently and totally disabled, that certification can take the place of a separate physician’s statement. VA Form 21-0172 is built for this.
SSDI Approval Is Not Automatic Proof
Being approved for Social Security Disability Insurance does not, by itself, qualify you for the IRA exception. The two agencies use similar but not identical standards. Someone the SSA classifies as likely to improve medically may not meet the IRS requirement of “long-continued and indefinite duration.”1Office of the Law Revision Counsel. 26 U.S.C. 72 – Annuities; Certain Proceeds of Endowment and Life Insurance Contracts Private long-term disability policies are even further off: they typically turn on inability to perform your own occupation, a much lower bar.
An SSDI approval is useful supporting evidence, and many SSDI recipients will also meet the IRS test. The physician’s statement still has to speak to the IRS definition directly.
Which IRAs the Exception Covers
The exception applies to Traditional, Roth, SEP, and SIMPLE IRAs.3Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions There is no cap on how much you can take, and the distribution can be a lump sum or spread across multiple withdrawals, as long as the disability condition exists when each one is taken.
Why Roth IRA Owners Get More Out of This
For a Traditional IRA, the exception waives the 10% penalty but does nothing to the income tax. The full taxable amount is still ordinary income in the year you receive it.
For a Roth IRA, the exception can make the whole withdrawal tax-free, including earnings. Under IRC §408A(d)(2)(A)(iii), a distribution made because of a §72(m)(7) disability counts as a “qualified distribution,” which is excluded from gross income entirely.4Office of the Law Revision Counsel. 26 U.S.C. 408A – Roth IRAs
One condition applies: the five-year holding period. The clock starts on January 1 of the first tax year you (or your spouse) made any Roth contribution. If your first Roth contribution was in 2022, the five-year period ends on January 1, 2027. Before that date, the distribution is not qualified even with a qualifying disability. The 10% penalty is still waived, but the earnings portion becomes ordinary income.4Office of the Law Revision Counsel. 26 U.S.C. 408A – Roth IRAs
How to Request the Money
Once you have the physician’s statement, contact the brokerage, bank, or financial institution that holds the IRA. You will fill out a distribution request form and indicate that the withdrawal qualifies for a penalty exception due to disability.
Your custodian’s job is administrative. They process the paperwork and send the money. They do not verify your medical condition or review your physician’s statement. That responsibility stays with you.
Claiming the exception means the custodian will not withhold the 10% penalty. They will still withhold federal income tax at a default 10% on nonperiodic distributions unless you file Form W-4R to pick a different rate between 0% and 100%.5Internal Revenue Service. Pensions and Annuity Withholding You can elect 0% withholding if you need every dollar, but the income tax bill still arrives at filing time.
Reporting the Exception So the IRS Honors It
Your custodian will send you Form 1099-R by January 31 of the following year.6Internal Revenue Service. Publication 1099 – Guide to Information Returns Look at Box 7. A disability distribution should carry Code 3, which signals the exception to the IRS.7Internal Revenue Service. Instructions for Forms 1099-R and 5498 If Code 3 is there, you generally do not need to file anything else to claim the waiver.
Custodians often default to Code 1 (early distribution, no known exception) when they have not independently verified a disability claim. If that is what shows up on your 1099-R, you must file Form 5329 with your Form 1040 or 1040-SR to claim the exception yourself. On Form 5329 Part I, enter the distribution amount on line 1, then enter the same amount on line 2 with exception number 03, the code for total and permanent disability.8Internal Revenue Service. Instructions for Form 5329 – Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts Line 3 then reads zero. Skip this step and the IRS computer sees an early distribution with no exception, and a penalty bill is generated automatically.
What a Large Withdrawal Does to the Rest of Your Finances
Dodging the 10% penalty is only part of the picture. A sizable IRA withdrawal can shift other numbers that matter to someone on disability.
A Traditional IRA distribution raises your adjusted gross income for the year. A higher AGI can push your “combined income” above the thresholds where Social Security disability benefits become partially taxable. For single filers, combined income above $25,000 makes up to 50% of SSDI benefits taxable, and above $34,000, up to 85%. For married couples filing jointly, those thresholds are $32,000 and $44,000.
The same AGI increase feeds into the Modified Adjusted Gross Income used for Affordable Care Act premium tax credits. If you buy coverage through the marketplace, which is common after leaving work for medical reasons, a large Traditional IRA distribution can shrink or wipe out your subsidy for the year. Qualified Roth distributions do not count toward AGI, which is another reason the Roth treatment is worth more than it looks.
State income tax is its own question. Not every state that taxes income follows the federal disability exception. If you live in one, check your state’s conformity rules before assuming the federal result carries through.