Early withdrawal — penalties and exceptions
Distributions from a retirement account before age 59½ are generally subject to a 10% additional tax on top of ordinary income tax — this article covers when that rule applies, the full list of IRS exceptions (including those added by the SECURE 2.0 Act), and how the rule works differently for Roth IRAs.
Steps / Explanation
Under Internal Revenue Code (IRC) Section 72(t), a distribution from an IRA or other qualified retirement account taken before the account holder reaches age 59½ is generally subject to a 10% additional tax, on top of the ordinary income tax owed on the distribution. The 10% tax is sometimes called the "early withdrawal penalty," though the IRS's own term is "additional tax."
The rule exists because retirement accounts receive favorable tax treatment on the expectation that the money will fund retirement — not current spending. The IRS recognizes, though, that there are legitimate reasons someone might need the money early. A long list of §72(t)(2) exceptions carves out situations where the 10% tax does not apply.
This article is about the voluntary 10% tax on early distributions. It is distinct from the required distributions covered in "Required Minimum Distributions (RMDs) — rules and deadlines" — RMDs start at a later age and carry a different (and more serious) penalty structure.
How the 10% additional tax works
The 10% tax applies to the taxable portion of the early distribution. Non-taxable portions (for example, after-tax basis in a Traditional IRA, or contributions withdrawn from a Roth IRA) are not subject to it.
The 10% is in addition to, not in place of, ordinary income tax. A distribution from a Traditional IRA before 59½ without an exception is typically taxed as ordinary income and hit with the 10% additional tax.
The 10% tax is reported on IRS Form 5329, which you file with your personal return.
The §72(t)(2) exceptions
The IRS exceptions below cover most situations where early distributions are allowed without the 10% tax. Some apply specifically to IRAs, some apply only to workplace plans like 401(k)s, and a few apply to both. This list is not exhaustive — for the current official list, see IRS Publication 590-B and the Form 5329 instructions.
Death. Distributions to a beneficiary (or to the estate) after the account holder's death.
Total and permanent disability. As defined by the IRS.
Series of substantially equal periodic payments (SEPP). A specific, IRS-defined schedule of equal distributions — also called a "72(t) election." Once started, the schedule generally has to continue for five years or until age 59½, whichever is longer. Breaking the schedule retroactively reinstates the 10% tax plus interest.
Medical expenses above 7.5% of adjusted gross income for the year.
Health insurance premiums while unemployed. Available to IRA owners who have received unemployment compensation for at least 12 consecutive weeks.
Higher-education expenses for the account holder, spouse, child, or grandchild.
First-time home purchase — up to a lifetime limit of $10,000 for an IRA.
IRS levy on the account.
Qualified reservist distribution — for members of a reserve component called to active duty.
Birth or adoption — up to $5,000 per child, added by the SECURE Act of 2019.
SECURE 2.0 Act additions (effective 2023–2026)
The SECURE 2.0 Act of 2022 added several new exceptions. Effective dates vary by provision; check the current Form 5329 instructions for the definitive year each applies:
Domestic abuse victim distribution — up to the lesser of $10,000 (indexed) or 50% of the account balance.
Terminal illness — no dollar cap; certification from a physician required.
Emergency personal expense — up to $1,000 per year; an expense can be repaid within three years to restore the exception for future withdrawals.
Federally declared disaster — up to $22,000 per disaster for affected individuals.
Long-term care insurance premiums — a limited-amount exception, with a phased effective date.
Public safety officers — expanded separation-from-service exception.
These newer exceptions often carry their own documentation and repayment rules that the older exceptions do not. We recommend consulting a tax advisor or attorney for guidance specific to your situation.
How Roth IRAs are different
Roth IRAs have a unique ordering rule that changes the picture substantially:
Your contributions to a Roth IRA (as opposed to earnings) always come out first, tax-free and penalty-free, regardless of your age or how long the account has been open. The 10% additional tax does not apply to contributions because there is no tax to apply it to.
Only after you have withdrawn all of your contributions do you reach the earnings portion. Earnings withdrawn before age 59½ or before the Roth five-year rule is satisfied are generally subject to both ordinary income tax and the 10% additional tax — unless a §72(t)(2) exception applies.
Roth conversions have a separate five-year clock. Converted amounts withdrawn within five years of the conversion can trigger the 10% additional tax even for someone over 59½, in some circumstances.
For the full detail on Roth distribution rules, see "Roth IRA distributions — tax-free withdrawal rules".
What counts as a "distribution"
A distribution is any amount that leaves the retirement account. That includes:
A direct payment to the account holder.
A withdrawal used for a permitted purpose (for example, to cover a medical bill).
A deemed distribution triggered by a prohibited transaction — see "What happens if you make a prohibited transaction?" — which is treated as a distribution as of January 1 of the year the prohibited transaction occurred.
A check that does not get redeposited within the 60-day rollover window.
Distributions from a Traditional IRA at Retired.com are reported by Digital Trust, the custodian for your account, on IRS Form 1099-R. For the account request flow, see "Taking a distribution — what you need to know".
Common questions
Does the 10% additional tax apply if I just roll my money over to another IRA?
No. A rollover — properly executed — is not a distribution for purposes of the 10% additional tax. The distinction matters: a direct rollover between custodians is the cleanest path; an indirect rollover gives you 60 days to redeposit the funds before they count as a distribution.
Does an exception cover ordinary income tax too?
No. The §72(t)(2) exceptions remove only the 10% additional tax. The distribution is still taxable as ordinary income (in the case of Traditional IRAs and the taxable portion of other accounts). The exception reduces the penalty, not the underlying tax.
If I qualify for an exception, how do I claim it?
You claim the exception on IRS Form 5329, using the specific exception code listed in the form's instructions. The custodian reports the distribution on Form 1099-R but does not apply the exception on your behalf.
Is the 10% tax the same as the 25% penalty I've seen for RMDs?
No — those are different rules. The 10% additional tax under §72(t) applies to voluntary early distributions. The 25% excise tax (reduced to 10% if corrected) under the SECURE 2.0 Act applies to missed RMDs after the RMD starting age. See "Required Minimum Distributions (RMDs) — rules and deadlines".
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