How AIDS Sufferer Can Get the Most Out of IRA
Q: I am 49 years old and suffering from AIDS. I am not expected to live more than two or three more years. May I withdraw from my individual retirement account without paying a penalty? If so, what forms do I use? --T.S.
A: Anyone meeting the government’s definition of disabled is entitled to take funds from his IRA, Keogh and/or 401(k) accounts without paying the 10% penalty for withdrawal prior to turning age 59 1/2. However, you must still pay ordinary income taxes on any portion of those withdrawals not already taxed.
Although a terminal illness, such as AIDS or the advanced stages of cancer, would seem likely to qualify as a disability, it may not actually be enough. You must be both sick and unable to work in order to tap into your tax sheltered savings accounts without paying a penalty. (Of course, you may still legally withdraw from these accounts at any time by paying the 10% penalty if you cannot meet the penalty exemption criteria.)
Section 72(t)(m)(7) of the Internal Revenue Code defines disability as “unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or to be of long-continued and indefinite duration.” A physician’s certification is usually required to prove your condition to the satisfaction of the authorities.
If you can meet the exemption criteria and proceed with the withdrawal, you should notify the financial institution handling your account that you are not subject to the 10% penalty because of your disability. The institution should note the exemption by filling in Box 7 on your 1099R Form with a Code 3. If Code 3 is not checked, you should file IRS Form 5329 to claim the disability exemption from the 10% penalty.
Again, this only entitles you to an exemption to the early withdrawal penalty; you must still pay ordinary income tax on the disbursement in the year you receive it.
You did not ask, but you might be interested in knowing that you may also be eligible to receive disability payments from the Social Security Administration.
Eligibility rules for these payments, as well as additional information of special importance to AIDS victims, is contained in “A Guide to Social Security and SSI Disability Payments for People with HIV Infection.” You may obtain the pamphlet by calling the Social Security Administration at (800) 772-1213.
AIDS Project Los Angeles, which provided much of the information contained here, has staff members and volunteers ready to answer any additional questions you may have about your financial and legal situation. They may be reached at (800) 922-2437.
Securing a U.S. Home Loan While Abroad
Q: I recently purchased a fixer-upper home in North Carolina for $15,000 that I will use for my retirement in six years. I was being shipped overseas at the time and couldn’t wait around to get a regular mortgage, so I financed the purchase through my credit union at 15% for five years. Now I would like to refinance the home and get a conventional mortgage. How can I complete the refinancing from my overseas assignment? --E.J.L.
A: Your best bet would be to select a trusted friend, relative, lawyer or accountant to represent your interests while you are abroad. Then execute a power of attorney authorizing them to act on your behalf in signing loan documents and other papers. Your representative can shop for a loan and secure it for you.
Your representative should obviously be someone you trust as well as someone who will be willing to spend the time it will take to get you a new loan. Since you do not need a large amount of money, it could be fairly simple if your fixer-upper can pass muster with the loan officer.
One last note: You may wish to include in your power of attorney that the authority to act on your behalf is limited to securing you a loan on your property and will end as soon as that task is accomplished.
What to Do When an Investment Goes Bust
Q: Several years ago, our accountant put our individual retirement accounts into a real estate investment. My husband had 5,150 shares worth $1 each; I had 2,715 shares. The name of the investment changed several times before I heard that the deal went bankrupt. Are these shares totally worthless? What happened to our money? --D.H.
A: Without knowing more, it’s impossible to say precisely what happened to your investments and if you will ever see your money again. In all likelihood, your money is lost. And to compound your misery, you are not entitled to deduct on your income taxes any losses you suffered on money that had not yet been taxed by the government.
If you want to trace your money, a good place to start would be the California Department of Corporations--or a similar department in the state in which the company was based--that might have a listing of the top officers of the company in which you invested.
You might also persuade the accountant who put you into this investment to help you research the whereabouts of your money. Where did the company file for bankruptcy? Who handled the filing? What assets did the company list? Are creditors’ names being taken for possible repayment? These are the types of questions you should pursue.
If you believe that you are the victim of a scam, you should notify the proper authorities, which could include the state Board of Accountancy, if your accountant was a part of the swindle, and the state Department of Corporations, if securities’ registration laws might have been broken.