Save time with our cheat sheets, fact sheets, checklists & books!

February 20, 2009

Early distribution Penalty

Print

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
More

Keep Learning

Saver’s Credit

Definition Also known as the Saver’s Tax Credit: Nonrefundable tax credit available to eligible individuals who make contributions to their retirement account. The saver’s credit

Catch-up Contribution

Definition An additional contribution that can be made to a retirement plan by a participant who is at least age-50 by the end of the

Salary Deferral Contribution

Definition A contribution made pursuant to a participant’s election to have a portion of his/her salary/wages  contributed to his/ her employer sponsored plan  rather than

Be among the first to know when

IRA Rules
Change