| Tax Topic #557 |
2008 Tax Year |
Topic 557 - Tax on Early Distributions
from Traditional and ROTH IRAs
To discourage the use of IRAs for purposes other than retirement, the law
imposes an additional 10% tax on early distributions from traditional and
Roth IRAs unless an exception applies. Generally, early distributions are
those you receive from an IRA before reaching age 59 1/2.
Distributions that you roll over to another IRA or qualified retirement
plan are not subject to this 10% additional tax. For more information on rollovers,
refer to Topic 413.
There are exceptions to this additional tax for early distributions that
are:
- made to a beneficiary or estate on account of the IRA owner's death
- made on account of disability
- made as part of a series of substantially equal periodic payments over
your life or life expectancy
- made to pay for a qualified first–time home purchase
- not in excess of your qualified higher education expenses not in excess
of certain medical insurance premiums paid while unemployed
- not in excess of your unreimbursed medical expenses that are more than
a certain percentage of your adjusted gross income
- due to an IRS levy, or
- A qualified reservist distribution
Refer to Publication 590, Individual Retirement Arrangements,
for more information on these exceptions.
Other exceptions apply to distributions from other qualified employee retirement
annuity plans. For information on these exceptions, refer to Topic 558,
or to Publication 575, Pension and Annuity Income. For more information
on IRA distributions, refer to Publication 590.
The 10% tax is reported on Form 5329 (PDF).
However, you do not have to file Form 5329 if your Form 1099-R (PDF) shows distribution code "1" or "J" in Box 7. In this instance,
you need only enter the 10% tax on the appropriate line of your Form 1040 (PDF). If you meet one of the exceptions to the
tax, and your Form 1099–R does not have a distribution code "2", "3",
or "4" in the box labeled "distribution code(s)", or if the code shown is
incorrect, you must file Form 5329 to claim the exception.
Federal income tax withholding is required for distributions from IRAs
unless you elect out of withholding on the distribution. However, if you elect
out of withholding, you may have to make estimated tax payments. For more
information on estimated tax payments, refer to Publication 505, Tax
Withholding and Estimated Tax.
Page Last Reviewed or Updated: December 22, 2008
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