Question

What are the exceptions to the early withdrawal penalty?

Answer

Form 5329 exceptions to early withdrawal penalty codes are:

  • 01 — Distributions from a qualified retirement plan (not an IRA) after separation from employment and after reaching age 55
  • 02 — Distributions made as part of a series of substantially equal periodic payments — made at least annually. These distributions must be for:
    • Your life or life expectancy
    • The joint lives or joint life expectancies of you and your designated beneficiary

If the distributions are from an employer plan, payments must begin after separation from service.

  • 03 — Distributions due to total and permanent disability
  • 04 — Distributions due to death. This doesn’t apply to modified endowment contracts.
  • 05 — Qualified retirement plan distributions that:
    • Were used to pay deductible unreimbursed medical expenses
    • Exceed 10% (7.5% if you or your spouse was age 65 or older) of your adjusted gross income (AGI)

You don’t have to itemize your deductions to claim the exception.

  • 06 — Qualified retirement plan (not an IRA) distribution under a qualified domestic relations order
  • 07 — IRA distributions made to individuals who were on unemployment compensation for 12 consecutive weeks to pay for health insurance premiums
  • 08 — IRA distributions made for higher-education expenses
  • 09 — IRA distributions made to buy your first home, up to $10,000
  • 10 — Distributions due to an IRS levy on the qualified retirement plan
  • 11 — Qualified distributions to reservists while serving on active duty for at least 180 days
  • 12 — Other — see Form 5329 instructions. Also, use this code if more than one exception applies.

If you had economic losses as a result of certain federally declared disasters, you can exempt the 10% early distribution tax without filing Form 5329. To learn more, see Publication 590 for available disaster relief.

 

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