What Early Distributions Qualify As Exempt From the 10% Tax Penalty?

If you take money from an IRA or another retirement account before age 59½, the IRS may charge an additional 10% early withdrawal penalty on top of any income tax you owe. However, several exceptions can allow all or part of your distribution to avoid the penalty. 

If our program calculates a 10% early withdrawal penalty, review the exceptions below to see if you qualify.

Note: Only enter the portion of the distribution that qualifies for an exception.

Common Exceptions to the 10% Early Withdrawal Penalty

You may qualify for an exception if your distribution was:

1. Made after separation from service at age 55 or older
   • Applies when you leave your employer during or after the year you reach age 55 and receive distributions from an eligible employer-sponsored retirement plan.
2. Part of a series of substantially equal periodic payments
   • Payments must meet IRS requirements and generally continue for a specified period.
3. Due to total and permanent disability
   • You must be able to provide proof that a physical or mental condition prevents you from performing substantial gainful activity.
4. Made after the account owner's death
   • Applies to distributions received by a beneficiary or estate.
5. Used for unreimbursed medical expenses
   • Limited to qualified unreimbursed medical expenses that exceed 7.5% of your adjusted gross income (AGI).
6. Paid to an alternate payee under a Qualified Domestic Relations Order (QDRO)
   • Applies to certain qualified retirement plan distributions made as part of a divorce or legal separation settlement.
7. Used to pay qualifying health insurance premiums while unemployed
   • Applies to certain IRA distributions used for health insurance coverage during periods of unemployment.
8. Used for qualified higher education expenses
   • Applies to eligible IRA distributions used to pay qualified education costs.
9. Used for a first-time home purchase
   • IRA distributions may qualify for an exception up to a lifetime limit of $10,000.
10. Made because of an IRS levy
    • Applies to certain distributions resulting from an IRS levy against the retirement account.
11. Qualified reservist distributions
    • Applies to military reservists called to active duty for at least 180 days.

Other Exceptions

You may also qualify if the distribution was:

• Incorrectly reported as an early distribution using Code 1, J, or S in Box 7 of Form 1099-R, even though you were age 59½ or older.
• From a Section 457 plan and not rolled over from another qualified retirement plan.
• Paid under certain pre-March 1, 1986 distribution elections that meet IRS requirements.
• An ESOP dividend distribution under Internal Revenue Code Section 404(k).
• From an annuity contract and attributable to pre-August 14, 1982 investment in the contract.
• A phased retirement annuity payment made to a federal employee.
• A permissible withdrawal under Section 414(w).
• A qualified disaster distribution.
• A coronavirus-related distribution.
• A qualified birth or adoption distribution.
• A distribution that qualifies under more recent IRS exceptions, such as certain domestic abuse victim distributions, emergency personal expense distributions, or other federally authorized relief provisions. Eligibility requirements apply. 

How to Report an Exception in the Program

If your distribution qualifies for one of the exceptions above:

1. Federal 
2. Other Taxes
3. Additional Taxes on Qualified Plans and Other Accounts
4. Enter the amount of the distribution that qualifies for an exception in the box labeled "Early distributions that aren't subject to 10% tax"
5. Select the appropriate reason from the Reason for Exemption drop-down menu.

Only enter the amount that is exempt from the additional 10% tax.

Additional Information

For a complete list of IRS-approved exceptions and eligibility requirements, see the IRS guidance on Exceptions to Tax on Early Distributions.