Ask The Experts: Money Matters

By Mike Miles

Disability and TSP early withdrawal

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Q. What is the definition for the Thrift Savings Plan early distribution exclusion “made as a result of total and permanent disability”? Does this mean that a retired military member with a Veterans Affairs Department-certified disability who is under age 55 is excluded from the 10 percent early withdrawal penalty? Specifically, I would like to withdraw my TSP in full upon military retirement at age 42 and will most likely have a portion of VA-certified disability based on injuries sustained on active duty. What justification is needed to report to the Internal Revenue Service when you file your taxes?

A. I can’t speak for the IRS, but here’s what I understand about it: A disability qualifies an account holder for an early withdrawal without penalty if it meets the definition in Section 72(m)(7) of the Internal Revenue Code. According to this stipulation, a disabled person must be unable to engage in substantial gainful activity, namely employment. The disability must be a medical condition, either physical or mental, that most likely will either result in death or continue to affect the individual over the long term. Regardless of the nature of the disability, a person seeking to claim the disability exception for an early IRA withdrawal must provide proof of the condition. According to Section 72(m)(7), a disabled person must supply evidence as dictated by the secretary of the treasury. The Internal Revenue Code does not specify what form of evidence satisfies the requirement, but the general rule is to undergo an examination and receive a diagnosis in writing from at least one physician.

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