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Early Access Of Retirement Accounts Through IRS’s Disability Designation

Disability – one of the most vague concepts out there. That’s what happens when thousands of politicians and lawyers each get to add a little to a concept over several decades. It morphs into something it was never meant to be. And those who don’t know any better piggyback something else on top of it and it eventually becomes a system that’s impossible to alter.

Over the decade that I’ve practiced medicine full-time I have had patients on disability for all sorts of conditions and complaints.

  • headaches
  • back pains
  • diabetes
  • hypertension
  • foot pain
  • neuropathy
  • shingles pain
  • anxiety
  • IBS
  • depression
  • PTSD
  • arthritis
  • fatigue
  • fibromyalgia
  • gout
  • asthma
  • chronic cough
  • cancer


As laypersons we think of disability as something major, perhaps tragic. We imagine a person who has had many tests and evaluated by multiple independent groups in order to come up with their particular disability designation.

As physicians we know how easy it is to give someone a handicap placard. We know how easy it is to get someone specific work accommodations by simply writing a letter. We can let our patients carry their pets on planes and into stores by documenting the right things.

My main point is that disability is incredibly subjective and there is no “test” for disability. There is no disability center that you must visit in order to be considered disabled. You don’t need to have crutches, a missing limb, or have an absolutely miserable existence in order for you to be considered disabled.


Disability & Retirement

The reason I am talking about disability on this blog is because a disabled healthcare professional would have certain tax benefits. The simplest one which I’ll discuss in this post is the 10% tax penalty. This early withdrawal penalty fee is considered to be a huge hurdle by many aspiring early retirees even though it needn’t be.

On a side-note, I don’t think the savvy investor should view their qualified (tax-deferred) retirement accounts as anything different from their savings account or brokerage account. There might be a few more simple steps involved in accessing the money but that 10% shouldn’t be the hemorrhoid we make it out to be.

IRS Definition of Disability

The IRS uses a terminology called Permanent And Total Disability (PTD). It sounds fierce but it’s no different from any disability which you and I are familiar with – except that the IRS wants to set it apart from short-term disability – think pregnancy, or having a cast on or recovering from CTS surgery.

Requirements for PTD? A letter from your doctor.

To Whom It May Concern,
“This letter serves the purpose to demonstrate that Jane Smith has been evaluated by myself and considered to be permanently and totally disabled.”

Dr. Mo

I don’t need to write this letter to the IRS.
I don’t need to send it to a lawyer.
I don’t need to file it with DOL.
I don’t need to have it notarized.
I don’t even need to mention in the letter why I consider Jane disabled because that would violate her health privacy privileges.

And when Jane goes to file her taxes or access her retirement accounts early without paying the 10% tax penalty, she won’t need to send this letter to the IRS nor go through a laborious process to justify the disability designation.


Can You Work And Be On Disability?

Yes. IRS publication 524 has some useful information for anyone who thinks they would need to pursue a disability statement from their physician. Even though PTD should mean that you aren’t able to perform a job – you can still earn some income or do some volunteer work.

In that publication the IRS has listed a few examples which are helpful to review, demonstrating that if you can have substantial gainful activity then you don’t qualify for permanent total disability. But that insubstantial activity resulting in wages less than minimum wage would be permissible.

IRS Disability Versus Insurance Disability

Disability is no more a real concept as is gender – it means different things to different groups. For a doctor someone’s gender is determined by their chromosomal blueprint. For the police it’s whatever is written on your ID. For the business owner, your gender appearance is what matters in regards to which bathroom you get to use.

The IRS views and handles disability one way, while insurance companies which issue disability policies handle it in another. If you have a specific own-occupation rider on your disability insurance then you can be considered disabled if you can’t see patients in the Urgent Care but can still see patients on the phone. So you could pocket your $10k/month disability income and earn $20k/month for doing telemedicine.

Examples Of Working On Disability

Let’s forget about the disability insurance stuff now because this post is only pertinent to the IRS’s definition of disability. The IRS says that you can be considered disabled but still take care of your animals on your homestead. You can be PTD and still take care of your kids at home.

In a way, this is actually to the benefit of those who might consider seeking out a disability statement for their medical condition. If your work isn’t considered substantial or gainful then you are off the radar.

But you can’t go volunteer full-time as a doctor and still have an IRS disability designation. But, you can volunteer a few hours a week and you’d be fine.


My Moral Blurb About Disability

The wonderful thing about having a blog is that I can voice my opinion and get genuine and fantastic feedback from my readers which I’m very grateful for. But also because I have no major industry designation that would prevent me from voicing my opinion, I can share with you how I feel about the whole disability thing.

I understand the concept of disability and why its formal designation can be beneficial to patients. Just like any system, it can be abused either by the designees or the issuing body.

As a physician I have to set aside my prejudices and my biases and follow the rules and concepts of my profession. My profession isn’t some nebulous higher calling, we’re not in la-la land. My occupation is a highly regulated profession bracketed by licensures and multiple governing bodies on the local, State and federal levels.

A patient with diabetic neuropathy causing pain in the lower extremities isn’t going to be able to comfortably maintain their job as a produce clerk. And my CPA patient with Meniere’s is unable to concentrate on client care due to his persistent vertigo. Could they do other tasks? Of course. Does the IRS expect a CPA to go and pursue a job as a Walmart greeter? No.

The line can start getting fuzzy with the patient who has uncontrolled hypertension because they aren’t taking their meds, causing constant headaches and blurred vision. Or the obese patient who is having back pain. How about the smoker who has uncontrolled obstructive pulmonary disease?

How about the alcoholic who is unable to stay focused or having constant tremors preventing her from holding down her technical job?

Now, how about the hardcore athlete who is a surgeon who does so many different sports that they are in constant pain? One day it’s strained elbow from grappling, then it’s a painful A2 pulley from bouldering, then it’s knee pain from mountain biking and a concussion from surfing.


Can You Be Permanently Disabled… Temporarily?

Yes. Even though he IRS has chosen ‘permanent and total disability’ as the term to describe a disabled person, it doesn’t really have to be all that permanent and all that total in order to qualify.

The surgeon who can’t operate anymore because of his multiple, debilitating, painful, and distracting injuries might decide to give up sports for a life of Netflix & pizza. Perhaps he was disabled for a few years while being active but now is back to full duty.

In short, you can qualify for PTD under the IRS’s definitions and then lose your disability and go back to work. Who knows, you might get permanently disabled again… for a while.


The Takeaway From This Debatable Post

These posts are my opinion and though I try to present facts, I try avoiding passing moral judgement outside of how things relate to my life. My posts are me subjectively delivering… unbiased information to you. They are 100% accurate… most of the time.

I’m not trying to tell you to commit fraud, I hope that’s clear to you. But you need to know the laws and rules which keep your money hostage. Everyone who is playing the game deserves to play it using the same rules.

The same legal system which will sue you for making a patient mistake is there to protect a person with disability. All laws have good uses and bad uses.

I’m no martyr. I’m not taking the higher road in medicine. I’m pushing the same meds by citing the same biased research articles funded by pharmaceutical companies, carried out by clinicians who are consultants for such companies.

If my colleague came to me and said that his depression is preventing him from substantial gainful activity, I’ll be the first to pull out my keyboard and type up that letter. And I’ll go toe-to-toe with any entity that wants to question my clinical decision-making regarding the disability claim.


Real patient examples to contemplate:

  • 47 yo male with a massive inguinal hernia which failed repair x2. Still working as a janitor, full-time.
  • 38 yo male who comes into my office stoned every time and is on disability for back pain, as he jumps on the exam table like an olympian.
  • 68 yo woman with severe rheumatoid arthritis who is a working, full-time social worker.
  • 69 yo woman who is on disability for COPD secondary to smoking. Smelling like fresh nicotine.
  • My good friend and colleague who is now dead after taking his own life who suffered with major depression for years and who worked full-time up until his death.
  • 52 yo male on disability who is using a cane for his right knee pain, sitting on my poor little stool because at 420 lbs he won’t fit on the patient chair.
  • My 39 yo Obstetrician friend who works full-time despite an impressively obvious case of poorly controlled PTSD after an unfortunate and unavoidable poor outcome, followed by a lawsuit, and followed by death threats from the family.
  • My 60 and 62 yo couple who are both on disability for hypertension. Who spend the first few minutes of each visit complaining that the household’s $1,600/month disability checks aren’t enough to live off of.

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