this has been a 1.5 year battle with paychex who administers my 401k. I left work due to disability in 2008. In 2018, they send me a letter threatening to move my money and charge a fee because my account is in active. they say to respond via email or fax.....I did both, they ignored me. I indicated that I wanted to do the withdrawal due disability retirement. they finally responded after I filed a complaint with BBB, but kept giving me the run around. they send the letter was sent to me in error so they thought it would be okay to ignore me......I actually stopped trying for a while. they kept trying to process it as if I was still actively working ...even though I repeatedly told them I hadn't worked in 10 years.
mid 2019, they said they needed my employer to medically verify I was disabled. my employer has no medical documentation, they only have a letter from me saying I was leaving for health reasons. paychex said it was straightened out and sent me my money....i thought we were done.
they took out the 20%, i figured I just had to do taxes this month and get the refund.....but they have the 1099 coded as 1/early distribution, no exception instead of 3 disability.
I tried doing turbo tax and 2 other 'free' tax sites. When i try the form 5329, i don't get as much as when I run it with just putting in the 3 code. I am also concerned it will trigger an audit when there is a discrepancy.
paychex is continuing to act stupid, I am too sick to fight with them. I sent them a medical letter I had from early 2009 as well as documentation that I have been on SSDI since 2009. They still have not corrected it.
The letter simply says I am disabled due to (my diagnosis) and doctor recommends I be approved for permanent disability. Should that be enough to qualify for 'disability distribution'
I can't afford an accountant or tax lawyer. I've been through an audit with IRS agents that don't know tax laws...i had to keep sending them copies of the regs...I can't do that again.
Can the letter from my doctor be provided through me or does the employer still need to verify I was medically disabled 10 years ago?
my employer is a small company without an actual HR person....no one actually trained in HR issues.
I assume that the portion of the 20% you're trying to get back would be much more than the cost an accountant.
It probably would be worthwhile to consult with an accountant to make sure everything is done properly.
No it won't be worth it. I need every penny I can get. its actually a small amount, but enough to cover bills my SSDI doesn't for a month. I never had much of a chance to build retirement income. I've been seriously struggling with my health since I was 19. I had 2 other retirement plans that were already cashed out...this was the smallest one.
and honestly, i probably won't be around in a few years when the IRS comes after me...so it won't be my problem.
The penalty for an early withdrawal is 10%, not 20%. Maybe they withheld 10% plus estimated taxes?
Are you over 59-1/2? Did your medical expenses exceed 10% of your adjusted gross income that year? Or could you say you needed the money to avoid being evicted? Those are some of the grounds for waiving the penalty.
I was in a similar situation a few years ago - needed to withdraw from my 401(k) for medical expenses that exceeded 10% of my AGI. A big chunk of that was COBRA payments. My tax guy said that it counted as legitimate grounds for waiving the penalty on an early withdrawal, even though the withdrawal form was coded for early distribution. He had a hard time figuring out how to code it in his professional-level tax prep software but eventually figured it out. I got the penalty back and the IRS didn't question it. I'll bet that option isn't available on the free systems. You might have to go with a tax preparer.
According to this site, employers don't have to offer hardship withdrawals. Maybe your employer doesn't.
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