Usually, required minimum distributions aren't required from your retirement plans until you're 70 1/2 years old or, in some employer plans, until the year you retire if that's later. You might also have to take required withdrawals from an inherited account, but you don't have to worry about the early withdrawal penalties on those either. The bottom line is this: the distributions when you're disabled are taxed the same way as distributions when you're not.
Required Minimum Distribution Age
If you have money in a traditional IRA, you're required to start taking distributions in the year you turn 70 1/2, regardless of whether you're still working or not. For other employer-sponsored plans, like 401(k)s, your plan can allow you to defer required minimum distributions until the year you stop working if you're still employed when you hit 70 1/2. When you inherit an account, you usually have to empty it within five years or take out a minimum amount each year, though there are exceptions for surviving spouses.
When you take a distribution from a tax-deferred account, like a traditional IRA or a 401(k), you usually owe takes on the entire withdrawal. However, if the account contains some nondeductible contributions, you get that portion of the withdrawal out without being taxed. For example, say you take an RMD and 30 percent of the account's value consists of nondeductible contributions. If you take out $5,000, only $3,500 is taxable.
If you have a Roth IRA, you're only required to take distributions if you inherited the account. In that case, you don't owe any taxes if the account has been open for at least five years. If it hasn't been, then you get all the contributions in the account out first without paying any taxes, but once you start taking out earnings you start owing taxes. For designated Roth accounts, like Roth 401(k)s or Roth 403(b)s, you also get your RMDs out tax-free as long as the account has been open for at least five years. But if not, you split your distributions between the contributions, which aren't taxable, and the earnings, which are taxable.
When Disability Matters
Being totally and permanently disabled only makes a difference on withdrawals before you turn 59 1/2 years old -- not on required minimum distributions. The IRS includes disability as an exception to the 10 percent early withdrawal penalty. For example, say you took out $50,000 from your traditional IRA when you were 54. If you weren't permanently disabled, you'd owe not only the income taxes on the withdrawal, but also a 10 percent early withdrawal penalty. But, the disability waives the early withdrawal penalty.
- Internal Revenue Service: Publication 590 -- Individual Retirement Arrangements (IRAs)
- Internal Revenue Service: Retirement Plans FAQs regarding Required Minimum Distributions
- Internal Revenue Service: Topic 557 - Additional Tax on Early Distributions from Traditional and Roth IRAs
- Internal Revenue Service: Topic 558 - Additional Tax on Early Distributions from Retirement Plans, Other Than IRAs
- Internal Revenue Service: Designated Roth Accounts -- Distributions
Based in the Kansas City area, Mike specializes in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."