To discourage the use of deferred qualified retirement funds for
purposes other than normal retirement, the law imposes an additional 10%
tax on certain early distributions of these funds. Early distributions
are those you receive from a qualified retirement plan before reaching
age 59½. The term qualified retirement plan means:
- A qualified employee retirement plan such as a 401(k),
- A qualified annuity plan,
- A tax-sheltered annuity plan for employees of public schools or
tax-exempt organizations,
- A Simple IRA.
Distributions that you roll over to another qualified retirement
plan are not subject to this 10% tax. For more information on rollovers,
select Topic 413.
There are certain exceptions to this penalty. Four of these exceptions
apply to distributions from any type of qualified retirement plan. They
are:
- Distributions made to your beneficiary or estate on or after your
death,
- Distributions made because you are totally and permanently disabled,
- Distributions made as part of a series of substantially equal periodic
payments over the life expectancy of the owner or life expectancies of
the owner and the beneficiaries. If these distributions are from a qualified
employee plan, you must separate from service with this employer before
the payments begin for this exception to apply, and
- Distributions that are equal to or less than the amount of deductible
medical expenses, whether or not you itemize.
For more information on medical expenses select Topic
502.
Additional exceptions apply to distributions from a qualified employee
retirement or annuity plan. For information on these exceptions, order
Publication 575, Pension
and Annuity Income. The 10% tax is reported on Form 5329 and Form 1040
line 53. Form 5329 is required if one of the exceptions is met and Form
1099-R shows a distribution code of 1". Form 5329 is not required
if box 7 shows distribution codes of 2", 3", or 4" or there
are no exceptions and box 7 shows a distribution code of 1". In this
case enter the 10% tax on line 53 Form 1040 and write no on the dotted
line next to line 53.
If you have a distribution from a Simple IRA, an additional penalty
may apply. Please see Publication
560, Retirement Plans for Small Business.
Distributions from a qualified retirement plan are subject to federal
income tax withholding; however, if your distribution is subject to the
10% additional tax, your withholding may not be enough. You may have to
make estimated tax payments. For more information on estimated tax payments,
select Topic 355, or see Publication
505, Tax Withholding and Estimated Tax. Publications and forms
may be downloaded from this site
or ordered by calling 1-800-829-3676.
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