Early Withdrawal from Retirement Account

Withdrawals from a retirement account before age 59-1/2 incur a 10% penalty (in addition to income tax on the amount) unless the withdrawal qualifies for an exemption. (For a listing of exemptions, refer to Pub 4012 pg H-4.)

Early withdrawals subject to the penalty are indicated on the taxpayer's 1099-R with Box 7 Distribution Codes 1 or S.

NOTE: Distribution code J is an early distribution from a Roth IRA and is out of scope for TaxAide.

Early withdrawals (and any penalty exemption) are reported on Form 5329.

Exemption for Unreimbursed Medical Expenses

When the early withdrawal is made to pay unreimbursed medical expenses (Exemption code 05), some math must be done to figure the exemption amount. The following example shows the exemption applies only to the amount of medical expenses which exceed 7.5% of the taxpayer's AGI, up to the remainder of the unreimbursed medical expenses. Any early withdrawal amount which exceeds the exempted amount is subject to the 7.5% penalty.

Updated Dec 29, 2019