I had surgery in Feb of this year and am still out on Long term disability. My employer is not holding my Job and I will need some additional cash to be able to function on the reduced disability check. At his time my Dr is saying that I will probably be out until Feb of next year, but we just don't know.

When I called the IRS, they indicated that if my disability has or is expected to last a year, I would be exempt from the additional 10% penalty. They directed me to the correct form for my Dr to sign so I have that on file. My disability year would have to go from Feb 07 to Feb 08 to take this exemption.

My question is: If I take the distibution in 2007 and file for the exemption, but then end up not being disabled thru Feb 08, what happens? How will the IRS even know if I am still disabled? Since my job was not held, I will collect unemployment once I am better while I decide what to do.

I want to take advantage of the exception, but am scared what will happen if I end up not disabled for the entire year.

Thanks for any help you may give me.

What happens? Probably nothing, as the IRS does NOT track such cases very close.

However, if they challenge your claim for exception of the penalty due to the disability, they WILL ask for proof of the disability. If you cannot provide the proof, they will then disallow the expeception and collect the 10% penalty.