What Is the Penalty for Cashing Out an IRA if You Are Disabled?
- Roth IRAs allow you to take qualified distributions once you've had the IRA account for five years. A qualified distribution means it's not subject to an early withdrawal penalty of 10 percent. In addition to having had the account for five years, you also must be age 59 1/2, disabled or meet the qualifications for a first home distribution. Roth IRA funds are taxed when you make your initial contribution, so no further taxes are due when you make a withdrawal.
- If you have a traditional IRA, you can also make a withdrawal without an early withdrawal penalty, if you furnish proof that you're disabled. Contact your IRA company for specifics as to where and how to provide the information. Any interest your IRA has earned will be considered taxable income when you withdraw it from your account.
- You can make penalty-free withdrawals before age 59 1/2 if you qualify as disabled. To qualify as disabled, you must be able to prove that you're unable to work. A physician also must certify your condition is long-term. If you meet the guidelines to receive Social Security Disability Insurance, you're likely to meet the disability requirements for the IRS as well.
- Other retirement accounts, such as a 401(k) or 403(b), also allow early withdrawals without a penalty if you're disabled. To access these funds, contact your company's human resources department or directly contact your retirement plan. As with IRA withdrawals, be prepared to provide proof of your disabling condition, including your medical history, medical providers and a list of your medications.
