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Additional Taxes on Early Retirement Distributions

Figuring the Additional Tax Penalty on Form 5329

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You calculate the additional tax on early withdrawals from a retirement account using Form 5329 (PDF) lines 1 through 4.

Line 1: Report the taxable distribution from box 2a of Form 1099-R.

Line 2: Enter the amount not subject to the additional tax because an exception applies. Enter the appropriate exception code.

Line 3: Subtract line 2 from line 1. This is the amount of retirement distributions that are subject to the additional tax.

Line 4: Multiply the figure on line 3 by 0.10. Also enter this amount on Form 1040 line 60. If the distribution was from a SIMPLE IRA, the penalty may be 25% instead of 10%. The 25% penalty applies if you began participating in a SIMPLE IRA account within the past two years. Multiply the amount on Line 3 by 0.25 instead.

Exception Codes for Form 5329 Line 2

The following exception codes are to be used for Form 5329 Line 2 to inform the IRS that part or all of your retirement withdrawal is not subject to the early withdrawal tax penalty. The following exception codes are found in Instructions for Form 5329 (PDF), pages 2 and 3.

  • 01: Separation from service after reaching age 55.
  • 02: Distributions are paid as part of a series of substantially equal periodic payments.
  • 03: Distributions due to permanent and total disability.
  • 04: Distributions due to death.
  • 05: Distributions to pay for medical expenses exceeding 7.5% of adjusted gross income.
  • 06: Distributions to another person under a qualified domestic relations court order.
  • 07: Distributions to pay for health insurance premiums and you were unemployed.
  • 08: Distributions to pay for college expenses.
  • 09: Distributions to pay for a first-time home purchase, up to $10,000.
  • 10: Distributions due to an IRS levy.
  • 11: Other. Use this code if more than one exception applies and see IRS Instructions page 3.

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