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liz
Newcomer

liz asked 8 months ago in 401k Plans

Long terd Disablity and withdrawl from 401K

I have been out of work since May of 2008 due to long term disability and in November was terminated due to being unable to return to duty. I had to close my 401K because the bill were so behind, and the disabilty pay is so much less than what I was making. I know I have to pay the taxes but can I claim it as a 3 for disabily and not have to pay the penalty being under 59 1/2 I have applied for SSDI and am awaiting approval.
Thanks for the help.

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Michael Kitces
FiLife Contributor
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Liz,
If you were totally disabled and took out the withdrawal from your 401(k) after that point, you should be able to claim an exception to the early withdrawal penalty on account of the disability. Of course, this doesn't avoid owing income taxes, but it will help you to avoid the additional 10% early withdrawal penalty.

Bear in mind that to quality for this exception, you must be totally disabled and unable to do any "substantial gainful activity" because of your condition. You should maintain any documentation that you have of the timing and nature of the disability, and a physician must be willing to affirm that your condition will last indefinitely.

I hope that helps a little! Best wishes to you in this difficult time!

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liz
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liz responded 8 months ago

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I appoligize for the spelling errors i have a processing problem.

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