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Thread: 401k/403b drawing early for disability

  1. #11
    I hear ya funklab. I believe you are correct on the automatic qualify except if you have worked for an extended period you might have to wait for 6 months and then you get a catchup lump sum for the 6 months as well as your 7th month payment (all at the beginning of month 7) if I'm not mistaken (I didn't check this but seem to recall that is how it works).
    Last edited by Patton57; 03-17-2018 at 11:27 AM.

  2. #12
    You can (thanks to the sweet advantages of total and permanent disability) use your 401k as a short-term tax advantaged account. This page sums it up well https://budgeting.thenest.com/withdr...lty-25437.html

    If you work for a large company you likely will get some sort of match (say matching 50% of the first 6% that you save). So if your are making $50k per year, for example, you contribute $3,000 ($50k x 6%) and your employer add $1,500 per year (50% of your 6%). Total annual savings = $4,500. Contributions come out pre-tax, so the $3,000 is more like a $2,400 reduction in taxable income (since you are paying less in taxes). That means, in this example, you give $2,400 and see $4,500 in your 401k each year. I will take that deal all day long.

    A common approach is to estimate how much money you will need for whatever you plan. Suppose that you want $100k to spend over 3 years as you travel the world. The maximum annual 401k contribution is $18,500. You mentioned that you had good prospects for increased earnings. If you save the max, you could have your $100k in just 5 years. Experts recommend avoiding stocks for short-term needs (less than 5 years), but stocks have appreciated (made money) over any 10 years period since 1900. If you assume a 10% annual appreciation (the average since 1920) and save the max ($18.5k) you would have more than $320,000 in 10 years. If you do that for twice as long (20 years), you will have $1,200,000! That's the magic of compounding.

  3. #13
    Quote Originally Posted by quadfather View Post
    You can (thanks to the sweet advantages of total and permanent disability) use your 401k as a short-term tax advantaged account. This page sums it up well https://budgeting.thenest.com/withdr...lty-25437.html

    If you work for a large company you likely will get some sort of match (say matching 50% of the first 6% that you save). So if your are making $50k per year, for example, you contribute $3,000 ($50k x 6%) and your employer add $1,500 per year (50% of your 6%). Total annual savings = $4,500. Contributions come out pre-tax, so the $3,000 is more like a $2,400 reduction in taxable income (since you are paying less in taxes). That means, in this example, you give $2,400 and see $4,500 in your 401k each year. I will take that deal all day long.

    A common approach is to estimate how much money you will need for whatever you plan. Suppose that you want $100k to spend over 3 years as you travel the world. The maximum annual 401k contribution is $18,500. You mentioned that you had good prospects for increased earnings. If you save the max, you could have your $100k in just 5 years. Experts recommend avoiding stocks for short-term needs (less than 5 years), but stocks have appreciated (made money) over any 10 years period since 1900. If you assume a 10% annual appreciation (the average since 1920) and save the max ($18.5k) you would have more than $320,000 in 10 years. If you do that for twice as long (20 years), you will have $1,200,000! That's the magic of compounding.
    Thanks for the article quadfather, that's a good summary of the process to access 401k/b money for disability purposes. It doesn't answer one of my main questions however which is:

    Can I then start working again a few years in the future and have another retirement account or does the IRS say permanent means permanent you shouldn't be making any money to put in a retirement account?

    Also that article suggests that the IRS may (though they hedge a lot) interpret things differently than SSA, and therefore they might ask "well if you were working before why can't you work now?" which is a legit question since traveling will be a lot harder physically than the job I'm doing right now.

  4. #14
    just bumping to see if anyone has run into this before

  5. #15
    Quote Originally Posted by funklab View Post
    Thanks for the article quadfather, that's a good summary of the process to access 401k/b money for disability purposes. It doesn't answer one of my main questions however which is:

    Can I then start working again a few years in the future and have another retirement account or does the IRS say permanent means permanent you shouldn't be making any money to put in a retirement account?

    Also that article suggests that the IRS may (though they hedge a lot) interpret things differently than SSA, and therefore they might ask "well if you were working before why can't you work now?" which is a legit question since traveling will be a lot harder physically than the job I'm doing right now.
    Because SSA considers motor complete SCI as one of conditions automatically defined as disabled, I am confident that you could cycle on and off as frequently as you'd like (and therefore also pass any IRS qualifications needed for 401k withdrawals as well). Just to be certain, you can contact your 401k plan administrator (this is the company who sends you your 401k statements). Examples of common/large 401k administrators include Vanguard, Fidelity, Schwab, etc. Explain your situation, ask them for details as to the process they require to withdraw early, but be clear that you are just fact-finding/planning and not initiating any withdrawal.

    I think logically it is also reasonable. Few would consider para/quad to not be a legit and reasonable qualifying disability by pretty much any commonly used definition. If pressed, going on and off disability could be explained as changes related to pain, skin-issues, UTIs or other common medical complications we deal with. Another way to think of it is like this: you could, by default and with no difficulty, qualify for disability benefits every month from now until you die. If you do work, and don't require/consume disability benefits for, say, a combined 10 years (consecutively or sporadically) from now until you die, that would be a 'bonus' from the SSA/IRS perspective.
    Last edited by quadfather; 03-23-2018 at 06:27 PM.

  6. #16
    I would suggest you call your local Social Security office. They should be able to tell you. You can also check out the SS website you may find what you're looking for. https://www.ssa.gov/

  7. #17
    Quote Originally Posted by quadfather View Post
    Just to be certain, you can contact your 401k plan administrator (this is the company who sends you your 401k statements).
    This is a good idea. I should have thought of this. Prudential ought to be able to tell me if I could go back on a 401k after withdrawing for disability reasons. And I won’t have to pay a lawyer $400 an hour to find out an answer. Thanks for the advice quadfather, don’t know why I didn’t think about that myself.

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