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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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