Early Distributions of Retirement Funds

Distributions from IRAs, 401(k) and other retirement plans may be taxed twice

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Distributions from an IRA, 401(k) or other retirement savings plan generally must be included as part of a person's taxable income.

Retirement plan distributions may be subject to an additional tax of 10% or 25%. This happens when a person takes a distribution before reaching a certain age, usually 59 and a half years old. However, there are exceptions to this additional tax. A person who qualifies for an exception might only have to pay income tax and not the additional early distribution penalty.

The Basics

If you withdraw money from a qualified retirement plan, you may be subject to an additional tax of 10%. This is penalty for taking an early distribution from an individual retirement account (IRA), Roth IRA, 401(k), 403(b), or other qualified retirement plan before reaching age 59 1/2.

The additional tax on an early distribution is 10% of the taxable amount.

The taxable amount is also included in your taxable income.

For early distributions from a SIMPLE IRA, the additional tax is 25% instead of 10% if the distribution occurs within two years of the date you first began participating in the SIMPLE IRA plan.


There are two sets of exceptions. The first set applies to individual retirement accounts (both traditional and Roth IRAs). The second set of exceptions applies to 401(k) and 403(b) retirement plans.

Exceptions for Early Distributions from Individual Retirement Accounts:

  • You had a "direct rollover" to your new retirement account using a trustee-to-trustee transfer.
  • You received a payment but rolled over the money to another qualified retirement account within 60 days.
  • You were permanently or totally disabled.
  • You were unemployed and paid for health insurance premiums.
  • You paid for college expenses for yourself or a dependent or a grandchild.
  • You received the distribution as part of "substantially equal payments" over your lifetime.
  • Qualified first time homebuyers up to $10,000.
  • You paid for medical expenses exceeding 10% of your adjusted gross income.
  • The IRS levied your retirement account to pay off tax debts.
  • Return of nondeductible contributions.
  • Non-qualified distributions from a Roth IRA.

Exceptions for Early Distributions from a Qualified Retirement Plan such as a 401(k) or 403(b) plan:

  • Distributions upon the death or disability of the plan participant.
  • You were age 55 or over and you retired or left your job.
  • You were age 50 or over and your retired or left your job as a public safety employee of a state government.
  • You received the distribution as part of "substantially equal payments" over your lifetime.
  • You paid for medical expenses exceeding 10% of your adjusted gross income.**
  • The distributions were required by a divorce decree or separation agreement ("qualified domestic relations court order"),
  • Distributions of dividends from an Employee Stock Ownership Plan
  • Recovery assistance distributions
  • Qualified reservist distributions
  • Distributions from federal plans under a phased retirement program
  • Permissive withdrawals from a plan with automatic enrollment features
  • Corrective distributions and associated earnings of excess contributions

The home-buying exception has the following additional criteria: you did not own a home in the previous two-years, and only $10,0000 of the retirement distribution qualifies to avoid the tax penalty.

You do not need to itemize in order to claim the medical expense exception.


New for Tax Year 2016

Certain types of government employees may access their retirement savings starting at age 50 instead of waiting to age 55. This applies to distributions from governmental defined benefit and defined contribution plans for employees who separate from service after reaching 50 years of age. This applies to the following types of government workers:

  • nuclear materials couriers,
  • United States Capitol Police,
  • Supreme Court Police, and
  • diplomatic security special agents

    This change was made effective starting with tax year 2016 as part of the Protecting Americans from Tax Hikes Act of 2015.

    Reporting the Early Distribution Penalty

    You figure the additional tax either directly on Form 1040 or on Form 5329 (pdf), depending on your particular tax situation. Please refer to the Instructions for Form 5329 (pdf) for all the details.

    Generally, you calculate the additional tax penalty directly on Form 5329 if you meet one of the exceptions and the retirement plan did not report the exception on Form 1099-R box 7.

    If the exception is properly coded in box 7 of your 1099-R form, you do not need to fill out Form 5329.

    Reference Material on the IRS Web site

    Tax Law Reference Material