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RSNOW
I know generally disability benefits paid from a qualified retirement plan are taxable, but I believe in some circumstances certain extreme disabilities may be exempt from taxation (e.g., loss of eyesight, limbs). If this is correct, does anyone know the code or reg cite that discusses non-taxation eligibility ?

Also, does the plan need to specifically include special language to support a potential non-taxable disability benefit or is the normal disability langauge found in most plans sufficient ?
MGB
Disability payments based on age or service (e.g., tied to the accrued benefit) do not get any preferential tax treatment. If the disability benefit is purely based on salary, then it is possible to get tax relief under Section 104 of the Code. See PLR 200152017
jashendo
The PLR cited (and the Rev Rl cited therein) did not involve qualified plan benefits; it dealt with a statutory disability benefit payable to firefighters, and applied the 104 exclusion as if it were a workers' comp benefit.
I cannot give you authority offhand, but I do not believe that a similar result would apply in the case of a 401(a) plan (under which distributions are taxable under 402 of the Code).
Everett Moreland
Your question is answered in Raymond J. Byrne v. Commissioner, 2002-319 T.C. Memo.
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