Rice Law Office Blog

If you need money due to financial hardships caused by total and permanent disability, you may be able to access funds by making a Penalty Free withdrawal from your retirement savings account. 

More than one in four of today’s 21 year olds can expect to be out of work for at least a year due to a disabling condition before they reach their normal retirement age. For some, the inability to work full time will be permanent. 

Workers’ compensation, short or long term disability, pensions and social security can soften the blow of losing an income to disability, but often it’s just not enough to keep up. Fortunately, there is a little known option available to people who become disabled due to a physical condition or mental illness.

Using the Disability Exception to the Early Distribution Penalty Tax for Retirement Accounts, qualifying disabled individuals can take money out of their 401(k), IRA plan, and other qualified plans, and SEP, SIMPLE IRA, and SARSEP plans before they turn 59 and 1/2 without the 10% early distribution penalty tax that normally applies. 

For many workers, their largest savings, next to a home, is their retirement account, so when things get tough, they look to this savings to help with the mounting bills. The problem is, unless they are taking advantage of the early withdrawal exception for disabled workers, taking that money can come with a steep loss. Between the taxes and 10% early withdrawal penalty folks can easily lose up to 30-40% of their savings by making an early withdrawal. Depending on your circumstances, there might be a much better way to access your savings with less loss.

If you have to withdraw money early from your retirement savings due to lost income from permanent disability, there may be a better way to do it in order to maximize your dollar value.

Under the Disability Exception, the IRS allows qualifying disabled workers to take early distributions from their retirement account without the 10% penalty. On a $100,000 withdrawal that’s a potential for $10,000 in savings that can be used to pay down a mortgage, offset living expenses or help pay for necessary medical procedures.

Need a quick guide to eligibility requirements for Disability Retirement? Here’s a checklist from the New Hampshire Retirement System (NHRS) website.

Disability Retirement

Members who are no longer able to perform the duties of their NHRS-covered employment due to an incapacity (either mental or physical) that is likely to be permanent may qualify for a Disability Retirement benefit. The Disability Retirement pension will be payable for the eligible member’s lifetime if the member’s disability continues.

Eligibility for Ordinary Disability Retirement (non job-related)

In the early days of my practice, one of my partners used to say, "unfortunately, if it is not in the medical record, it doesn’t exist." While this is not entirely true, the best evidence in a disability case is often found in the form of medical documentation, and the only way to get that evidence, is to go to the doctor.  However, for most people who are unemployed and without income or health insurance, getting necessary medical documentation can seem like an impossible task. 

It feels like a no-win argument, right? I mean, how can I possibly afford to go to the doctor to document every physical condition?  I'm sick or injured so I can't work; when I lost my job, I lost my health insurance and without an income, I don't have the money to pay for expensive doctor appointments, but without the doctor appointment, I don't have the records and without the records, I can't prove I'm eligible for disability so I can't get health coverage or disability benefits!  It seems insane, we know.   

Every day we see clients making choices between medical care and groceries. When you don’t have enough money to pay the rent or put food on the table, there really is no choice: you forgo treatment. The problem is, this can become a huge obstacle to your claim for benefits. Claimants who tell the judge they are in constant pain but who do not seek treatment may not come off as credible.  If you are injured or hurting, you need to be able to prove that with more than your word; it is vital that your testimony is supported by the medical record.   

What’s the answer? You must begin building a medical record. Even if you haven’t been going to the doctor regularly up until now, it is absolutely vital that you begin doing so immediately. It will be hard if you don't have health insurance, but there is help out there and you will need it.  See if you are eligible for Medicaid or Obama Care and speak to your doctor or hospital, because almost every county has a clinic or a hospital that will see patients at reduced cost if you truly aren't able to afford care. If you are a veteran, go to your local VA and definitely go to your local welfare office in your county and also in your town.  You can also check with your church or place of worship if you have one, as they might have a fund to help in cases such as yours.  There are resources out there, but you will have to work to find them. 

You may not be employed, but you have a lot of work to do and for now, your job is to seek out and get services for your physical and mental disabilities.  You must establish a relationship with a doctor, and attend follow up visits as well as any referrals which are made to see specialists. Whether you are applying for social security or private disability, they need to see records of your condition and care over time, not just once or twice.