It's a terrible thought, but what if you or your spouse were in a serious car accident and could no longer work? Even if you qualify for cash assistance under Medicaid's Supplemental Security Income (SSI) program, it still might not be enough to cover your expenses. Once you've depleted your other savings, you might choose to start withdrawing cash from your IRA. But what if you're younger than 59 ½? Won't the IRS hit you with a 10 percent early withdrawal penalty?
Thankfully, no. Disability is one of the official exceptions to the early withdrawal rule. According to the IRS, if you become disabled before age 59 ½, the 10 percent penalty does not apply to early withdrawals from either traditional or Roth IRAs. To qualify for the exception, though, you will need a note from a physician confirming that your disability prevents you from doing any "substantially gainful activity" and that your condition is permanent [source: IRS].
To qualify for any of the official exceptions to the 10 percent penalty, you need to file form 5329, "Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts," along with your 1040 tax return. The most important entry is Line 2, where you are prompted to enter the "appropriate exception number," one through 12, for your early withdrawal. The list of exception numbers is found in the instructions for form 5329. Hold onto all paperwork, doctors' notes and receipts, because the IRS could always call you in for an audit. Gulp.