I am 55 years old and have just become disabled. I have a 401k that I was told I shouldn't touch until I became 59 1/2 due to the tax implications and penalties. Are there any exceptions that I can claim for my situation?

ANSWER

The BIDaWIZ Team's Answer:

You are correct that generally you cannot withdraw from your 401K until you reach the age of 59 1/2 without facing penalties and interest. However, there is an exception to the rule for those that qualify for permanent disability which may be your case (IRC §72(t)(2)(A)(III)). The IRS considers you permanently disabled if you cannot engage in any substantial gainful activity because of a physical or mental condition and a physician determines that the condition has lasted or can be expected to last continuously for at least a year or can lead to death.

So you likely would not be subject to the 10% early withdrawal penalty. However, you still would owe takes on the distribution of the income on the federal level but not the state since you live in Florida which doesn't have state income taxes.