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    401k/403b drawing early for disability

    So I have a really specific question and was just wondering what people's experiences have been accessing their 401k/403b accounts early due to disability.

    My understanding is that you can access your retirement without the penalty fee if you are "totally and permanently disabled", especially if there is no improvement expected. I'm a T8 complete para and have had exactly zero improvement in the past decade, so I'm pretty sure I qualify and could access funds early.

    Here's my question:

    If you've drawn down funds on a 401k/403b due to disability, and then AFTERWARD you go back to work, can you still have a retirement account? Or is the IRS like "nah, bruh, you're permanently disabled already, whatchu doing tryna save for retirement. No 401k for you!"

    Here is why I ask:
    I strongly don't believe in saving for retirement and figure the possibility of becoming destitute again when I'm no longer able to work is pretty high. See http:///forum/showthread.php?257311-...n-t-believe-in for my general philosophy on things.
    BUT I am working right now and my employer hoodwinked (kind of) me into putting away money into a 403b. I'm pretty pissed because they "automatically" increased the amount I'm saving from 3% to 5% without really telling me (of course I threw away a lot of retirement paperwork because I more or less assume that money is going to vaporize before I ever get old enough to use it). I was about to get up off my lazy ass and change my contribution from 5% to 0%, but then I had a brilliant/devious/stupid idea, and I need you guys to tell me which it is.

    I plan to work for about 6 more years while saving money and then bounce and go traveling the world. I hope to have enough money to travel cheap (the only way I know how) for up to 5 years, but there's a distinct possibility I'll get bored or frustrated with traveling with a disability or get sick and have to return and then want to go back to work after a few months or a year.

    Sooo... I'm thinking what if I don't change my contribution to zero. What if I change it to the max (or as close to max as I can get and still afford rent). Then I could save a bunch of nontax money, and (hopefully) the investments would increase in value, and then I could draw down on it when I left to go traveling (I'd be back on SSDi as long as none of the rules change my understanding is you can still just hop back on if you've got a spinal cord injury, so I ought to automatically qualify to be able to draw down my 403b). It would be quite nice to take that money in a year that I have minimal income so it gets taxed very little, and then spend as much of it as I need when I'm on the road.

    However... after I'm done traveling and bullshitting I plan on going back to work for many more years and making way more money during that period of my career than I will make over the next 6 years, so I don't want to torpedo the option of having a retirement account in the future just to save a couple bucks in taxes in the short term.... I know I just said I didn't believe in retirement, but who knows how I might feel about that in 10 years after traveling around the world twice... I might be a very different person.

    So, has anyone accessed their 401k/403b early due to disability? If so what was the process like? Could you access it pretty quick or did you have to wait a long time? Was it a big pain in the ass?
    And has anyone ever accessed their retirement account early due to disability and then gone back to work?

    Sorry for rambling on so long, I'd really appreciate hearing (or reading I guess) your experiences with regard to retirement accounts. I've not thought much of them, except to think that they really don't apply to me, but maybe I can manipulate them to suit my twisted designs....

    #2
    Any chance of having your company plan funded after-tax? I have mine after-tax just for avoiding taxation got-ya's, as I doubt I'll be waiting to 65 to retire. Not sure how that affects company match funds, but at least I can grab the stuff I put in to get the match without issues.

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      #3
      Met with a couple of financial advisers when I first became chair bound. There was something about the frequency you can withdraw from your 401 (before 59.5) due to disability. It was once per year or once in a lifetime if I remember. Have not had to go that route yet so apologize for not having better facts.
      "Never turn your back on fear. It should always be in front of you, like a thing that might have to be killed." - Hunter Thompson
      T5/6 complete

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        #4
        I haven't went back to work yet but I did do a disability withdraw. I just had to get with the plan admin from the company and have them sign off. I believe there was some papers for the dr and they sent me some paperwork to sign and I sent it back with my bank info and it was direct deposited. The only trouble I had was waiting for the plan admin to do the paperwork.

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          #5
          Originally posted by royb View Post
          I haven't went back to work yet but I did do a disability withdraw. I just had to get with the plan admin from the company and have them sign off. I believe there was some papers for the dr and they sent me some paperwork to sign and I sent it back with my bank info and it was direct deposited. The only trouble I had was waiting for the plan admin to do the paperwork.
          Roughly how long did it take for you to have access to the money? Weeks? Months? Years?

          Was all this work before your injury or did you contribute some after your injury but before you accessed retirement funds?

          Have you looked into going back to work and what that would mean with regard to your retirement accounts?

          Comment


            #6
            Originally posted by Andy View Post
            Any chance of having your company plan funded after-tax? I have mine after-tax just for avoiding taxation got-ya's, as I doubt I'll be waiting to 65 to retire. Not sure how that affects company match funds, but at least I can grab the stuff I put in to get the match without issues.
            I don't think there is, I talked to someone who sounds like they know what they're talking about and I guess you can roll your 401k over into a roth IRA or something (whatever one is after tax), but I don't know if I can switch contributions to that.

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              #7
              It's probably not wise to hop on and off SSDI at will if you are fortunate enough and able enough to work. The unemployment rate in our population is incredibly high and a lot of folks would like to work, if they had the choice. A lot of private LTD carrier case workers peruse this site as well.

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                #8
                The unemployment rate among disabled persons isn’t going to factor into my decision to take off time from work anymore than the unemployment rate factored into my decision to do some before my injury. Employment isn’t a zero sum game, but even if it were, me quitting would just open an opportunity for someone else to get a job who needed one more than me (since obviously taking a few years off to bum around voluntarily would mean I was doing okay financially).

                I don’t know why private long term disability (had to google that one) case workers would have any interest in someone who doesn’t have private long term disability.

                if you’re trying to draw the conclusion that I’m somehow gaming the system, I am very clearly asking what’s legal and allowable. I’m definitey not committing fraud in any way. If there is an additional opportunity you can take advantage of due to a pretty horrific disability you’d be a fool not to (in my opinion). But that may be more of a moral question and I probably have quite a poor moral compass.

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                  #9
                  We don't want SSDI qualifications to change because they observe us hopping on and off.

                  Some people (C spine region) are on and off not by choice but because they have setbacks but are sincerely trying to work and keep it all together. Jobs provide a lot more than a paycheck (purpose, dating appeal, marriage material, independence, better health, ....).

                  I'm not trying to lecture you, just point out that we might want to be careful about going against the spirit of what is available to us.

                  Comment


                    #10
                    Fair enough, but if I’m quitting work to go travel whether or not SSDI, and all I have to do is let SS know I am no longer working and thus I automatically qualify for $1000 a month (this is my current understanding of how it works, I could well be wrong), I’m going to take it. I worked and paid into the system for many years and I have a qualifying disability, I have no qualms about collecting what I’ve paid for. I’d worry much more about physically able people hopping on (and never off) SSDI or SSI because they have a back ache or because they’re depressed (especially because working would almost certainly make their depression better)

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                      #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; 17 Mar 2018, 11:27 AM.

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                        #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.

                        Comment


                          #13
                          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.

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

                            Comment


                              #15
                              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; 23 Mar 2018, 6:27 PM.

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