Early IRA Withdrawal and the Definition of Permanent & Total Disability

In most situations, an early distribution -- one taken before you reach 59 ½ years of age -- from either a traditional individual retirement account or a Roth IRA means you’ll incur an income tax obligation and pay a 10 percent penalty. With a traditional IRA, taxes and penalties apply to the entire distribution. With a Roth IRA, taxes and penalties apply to earnings and interest on contributions. Regardless, you can avoid the 10 percent penalty assessment if you have a disability that meets the Internal Revenue Service’s “permanent and total disability” requirements.

Permanent and Total Disability Definition

Instructions for IRS Form 5329 -- Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts -- say that to meet the permanent and total disability requirement, you must be incapable of engaging in any “substantial gainful activity” due to either a physical or a mental condition. In addition, a doctor must certify that the condition is either of a long, continuous and indefinite duration or is expected to end in death.

Substantial Gainful Activity

Instead of listing specific, medically qualifying conditions, the IRS applies a broad definition of substantial gainful activity to determine whether your disability meets its requirements. Substantial gainful activity involves full-time or part-time work that is meaningful, productive and for which you receive at least the current minimum wage pay rate.

Unemployment due to a disability does not automatically qualify you for the 10 percent penalty exemption. Although the IRS does not consider activities such as institutional therapy or training, school attendance and social programs as substantial and gainful, doing these may indicate that you are also able to engage in substantial gainful activity.

Comparison Considerations

Although it's similar, the IRS' standard for a total and permanent disability is not identical to those of the Social Security Administration, the Veterans Administration and most long-term disability insurance plans. According to the Nolo-affiliated Disability Secrets website, the IRS standard generally exceeds all of these. However, these standards can help your case if, for example, Social Security classifies your case as "Medical Improvement Not Expected" or an insurer finds you incapable of performing work in any occupation.


  • Disability Secrets recommends that you consult a tax expert before claiming an early withdrawal penalty exemption.

    File IRS Form 5329 along with your tax return to claim the disability exemption. Enter the code number 03 on line 2 of Part 1-- Additional Tax on Early Distributions and then enter the amount not subject to the 10 percent penalty.