Form 5329 - Exceptions to Early Withdrawal Penalty

If your early 1099-R distribution qualifies for an exception, you can report the exempt amount in the software by following these steps:

1. Go to Federal Section.
2. Select Other Taxes.
3. Choose Additional Taxes on Qualified Plans and Other Accounts, Reported on Form 5329.
4. In Part I – Early Distributions That Are Not Subject to 10% Tax, enter the amount that qualifies for an exception.
5. Select the appropriate exception code from the drop-down menu.

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

Form 5329 Exception Codes

Code 01 – Separation From Service After Age 55

Applies to qualified retirement plan distributions (not IRAs) received after leaving your employer if the separation occurred during or after the year you reached age 55. For qualified public safety employees, the age requirement is generally 50.

Code 02 – Series of Equal Payments

Applies to substantially equal periodic payments made at least annually based on life expectancy rules.

Code 03 – Total and Permanent Disability

Applies when distributions are received because you are permanently disabled. You must be able to provide medical proof that your condition prevents substantial gainful activity and is expected to be long-term or result in death.

Code 04 – Death

Applies to distributions received because of the account owner's death.

Code 05 – Medical Expenses

Applies to qualified retirement plan distributions used to pay unreimbursed medical expenses that exceed 7.5% of your adjusted gross income (AGI).

Code 06 – Qualified Domestic Relations Order (QDRO)

Applies to qualified retirement plan distributions paid to an alternate payee under a qualified domestic relations order. This exception does not apply to IRAs.

Code 07 – Health Insurance for Certain Unemployed Individuals

Applies to IRA distributions used to pay qualifying health insurance premiums while unemployed.

Code 08 – Qualified Higher Education Expenses

Applies to IRA distributions used for eligible education expenses.

Code 09 – First-Time Home Purchase

Applies to IRA distributions used to purchase a first home. The lifetime limit is generally $10,000.

Code 10 – IRS Levy

Applies to distributions resulting from an IRS levy on the retirement account.

Code 11 – Qualified Reservist Distributions

Applies to distributions made to military reservists called to active duty for at least 180 days.

Code 12 – Incorrect Distribution Code on Form 1099-R

Applies when Form 1099-R incorrectly reports an early distribution using Code 1, J, or S in Box 7.

Code 13 – Section 457 Plan Distribution

Applies to distributions from a governmental Section 457 plan that were not rolled over from another qualified plan.

Code 14 – Pre-1986 Distribution Election

Applies to certain distributions made under a written election that was in effect before March 1, 1986.

Code 15 – Section 404(k) Dividends

Applies to dividends paid with respect to qualifying employer stock.

Code 16 – Certain Annuity Contract Distributions

Applies to distributions allocable to an investment in an annuity contract before August 14, 1982.

Code 17 – Federal Employee Phased Retirement Annuity Payments

Applies to qualifying phased retirement annuity payments made to federal employees.

Code 18 – Permissible Withdrawals Under Section 414(w)

Applies to certain automatic enrollment withdrawal provisions.

Code 19 – Qualified Birth or Adoption Distributions

Applies to eligible distributions taken after the birth or adoption of a child. You may need to attach a statement identifying the child or adoptee.

Code 20 – Terminal Illness Distributions

Applies to qualifying distributions made because of terminal illness.

Code 21 – Corrective Distributions of Excess Contributions

Applies to corrective distributions of earnings on excess contributions that are withdrawn before the tax return due date, including extensions.

Code 22 – Distributions to Victims of Domestic Abuse

Applies to certain qualifying distributions made after December 31, 2023, to individuals who meet the IRS requirements for domestic abuse victim relief.

Code 23 – Emergency Personal Expense Distributions

Applies to certain qualifying emergency expense distributions made after December 31, 2023.

Code 99 – More Than One Exception Applies

Use this code if multiple exceptions apply to the same distribution.

Other

If your situation qualifies for an exception not listed above, select Other and refer to the IRS Instructions for Form 5329 for additional guidance.

Need More Information?

Some exceptions have specific eligibility requirements, documentation rules, or dollar limits. Review the IRS Instructions for Form 5329 and IRS Publication 575 for additional details before claiming an exception.

Remember, claiming an exception can reduce or eliminate the 10% early withdrawal penalty, but the distribution may still be taxable income.