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February 20, 2009

Early distribution Penalty

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Definition

Distributions that occur before the retirement account owner reaches age 59 ½ are subject to an early distribution penalty (or excise tax) of 10%, unless an exception applies. For a list of the exceptions , see Early distribution penalty exception .

For SIMPLE IRAs, the penalty is increased to 25% if the distribution occurs before the end of the two-year period.

Referring Cite

IRS § 72(t), Form 5329 and its instructions, IRS Publications 590 and 575

Additional Helpful Information

  • The early distribution penalty applies to 457(b) plans, but only to amounts that received in a direct transfer or rollover from another type of eligible retirement plan.
  • If a 1099-R does not properly indicate whether the early distribution applies, the participant may file IRS Form 5329 to correct the reporting
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Applicable RMD Age The first year for which an IRA owner or plan participant must begin to take RMDs from their tax-deferred retirement account. RMDs

SIMPLE 401(k) Plan

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Required Minimum Distribution (RMD)

Definition The minimum amount that must be withdrawn from retirement accounts, including qualified plans, 403(b) accounts, 457(b) accounts or IRAs, each year.  For retirement account

Required beginning date (RBD)

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