Amounts that you withdraw from your IRA (distributions) before you reach age 59 ½ are subject to a 10% early distribution penalty unless you qualify for an exception, including a qualified disability.
You should select the Disability option within your IRA distribution request only if your distribution is made from a traditional IRA while you are under age 59 ½, and you are disabled as defined by the tax code. Disability, for this purpose, is the inability to substantially perform your job due to a medically determined physical or mental impairment that could affect you long-term, indefinitely or cause death. The tax code also provides that:
- A short-term illness is not considered to be a disability.
- Being disabled for the purpose of some benefits doesn’t necessarily make you eligible for the disability exception, for early distribution.
- The disability diagnosis must be provided by an acceptable medical source (AMS), including a licensed physician or a licensed or certified psychologist.
If your traditional IRA distribution is taken while you are disabled, Code 3 is input in Box 7 of the Form 1099-R issued to report your distribution due to disability. The IRS may require proof of your disability if your distribution is reported on Form 1099-R as well.