IRS Laws on 401K Accounts If You Become Disabled


The Internal Revenue Service (IRS) typically penalizes early withdrawals from 401k accounts. A permanent disability is among the few exceptions to this rule. If your disability is severe enough, you can tap into your 401k without penalty. An early 401k withdrawal may significantly reduce the amount of money you have for retirement, however, and thus should be a last resort.

Early Withdrawal

  • In general you may not withdraw money from your 401k account penalty-free until you reach age 59 1/2, according to IRS guidelines. A total and permanent disability is one circumstance that allows you to access your 401k funds earlier and without penalty.


  • The Internal Revenue Code defines a total and permanent disability as a physical or mental condition that renders you unable to work at any job. The disability must be of indefinite duration. You must provide medical documentation to support your disability claim.

Penalty Free

  • For most early withdrawals, the IRS assesses a 10 percent penalty in addition to levying taxes on the funds you withdraw. In the case of a proven disability, the IRS will waive the penalty. You will still owe federal and state taxes on the funds.

Employer's Discretion

  • Although the IRS may allow you to make an early withdrawal from your 401k in certain scenarios, the final decision is up to your employer. Your plan's written policy spells out which circumstances allow for an early withdrawal.


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