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Tax on Early Distributions
From Traditional and Roth IRAs

This is archived information that pertains only to the 2000 Tax Year. If you
are looking for information for the current tax year, go to the Tax Prep Help Area.

To discourage the use of IRAs for purposes other than retirement, the law imposes an additional 10% tax on early distributions of these funds unless an exception applies. Early distributions are those you receive from an IRA before reaching age 59½.

Distributions that you roll over to another IRA or qualified retirement plan are not subject to this 10% additional tax. For more information on rollovers see Topic 413.

There are exceptions to this additional tax for early distributions that are:

  • made to a beneficiary or estate on account of the IRA owner's death,
  • made on account of disability,
  • made as part of a series of substantially equal periodic payments over your life or life expectancy,
  • made to pay for a qualified first-time home purchase,
  • not in excess of your qualified higher education expenses,
  • not in excess of certain medical insurance premiums paid while unemployed, and
  • not in excess of your unreimbursed medical expenses that are more than 7.5% of your adjusted gross income.

Publication 590, Individual Retirement Arrangements, has more information on these exceptions.

Other exceptions apply to distributions from other qualified employee retirement annuity plans. For information on these exceptions, see Topic 558, or Publication 575, Pension and Annuity Income. For more information on IRA distributions, refer to Publication 590.

The 10% tax is reported on Form 5329. However, you do not have to file Form 5329 if your Form 1099-R shows a distribution code "1" in Box 7. In this instance, you need only enter the 10% tax on line 53 of your Form 1040. If you meet one of the exceptions to the tax, and your Form 1099-R does not have a distribution code "2", "3", or "4" in Box 7, or if the code shown is incorrect, you must file Form 5329 to claim the exception.

Federal income tax withholding is required for distributions from IRAs unless you elect out of withholding on the distribution. However, if you elect out of withholding, you may have to make estimated tax payments. For more information on estimated tax payments see Topic 355 or Publication 505, Tax Withholding and Estimated Tax. Forms or publications may be downloaded from this site or ordered by calling 1-800-829-3676.

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