Small Business Taxes & Management

Checklist


Exceptions To Early Distribution Penalty

 

Small Business Taxes & ManagementTM--Copyright 2016, A/N Group, Inc.

 

 

Introduction

Distributions (withdrawals) from an IRA, 401(k), or other qualified pension plan or annuity before age 59-1/2 are generally subject to a 10% tax or penalty. While it's called a tax in the law, it's more often referred to as a penalty. The additional tax is included on your Form 1040. If you're using software to prepare your return, the program will automatically compute the tax unless it has additional information showing the distribution qualifies for an exception. That additional information could include your age or a code from the Form 1099-R. In addition, one of the other exceptions listed below may apply. Keep in mind that in all cases, while the penalty won't apply, the distribution will be taxable income unless an exclusion applies. Also remember that the rules are more complex than indicated below.

Note Most, but not all, of the exceptions apply to both IRAs and other qualified plans.

 

Penalty Exceptions

___ Rollovers
___ Age 59-1/2 or older
___ Qualified plan involuntary cashouts
___ Death of participant (no penalty to beneficiary)
___ Disability - Totally disabled; no gainful employment; expected to be permanent; physical or mental impairment
___ Periodic payments; substantially equal payments; no less frequently than annually made for life or life expectancy
___ Retirement after age 55; age 50 for public safety employees; does not apply to an IRA distribution
___ Distributons for health insurance premiums; received unemployment compensation for 12 consecutive weeks; self-employed
___ Distributions for higher education expenses; taxpayer, spouse or taxpayer's child; tuition, fees, books, supplies
___ Distributions for first-time homebuyer; maximum distribution of $10,000; 120 days of withdrawal; taxpayer or child
___ Distributions to alternate payee; qualified domestic relations order; does not apply to IRA distribution
___ Dividend distributions to ESOP participant
___ Active duty; period of more than 179 days; IRA; elective deferrals; annuity
___ Corrective distributions by qualified plans and IRAs
___ IRS levy; distributions as a result of IRS levy
___ Phased distributions from federal retirement plan

 


Copyright 2016 by A/N Group, Inc. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is distributed with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional should be sought. The information is not necessarily a complete summary of all materials on the subject. Copyright is not claimed on material from U.S. Government sources.--ISSN 1089-1536


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--Last Update 01/21/16