You must include early distributions of taxable amounts from your traditional IRA in your gross income. Early distributions are also subject to an additional 10% tax, as discussed later.
Early distributions are generally amounts distributed from your traditional IRA account or annuity before you are age 59½, or amounts you receive when you cash in retirement bonds before you are age 59½.
. If you were affected by a qualified disaster, see chapter 3..
After you reach age 59½, you can receive distributions without having to pay the 10% additional tax. Even though you can receive distributions after you reach age 59½, distributions aren't required until you reach age 72. See When Must You Withdraw Assets? (Required Minimum Distributions) , earlier.
A number of exceptions to this rule are discussed later under Exceptions . Also see Contributions Returned Before Due Date of Return in chapter 1 of Pub. 590-A.
The 10% additional tax applies to the part of the distribution that you have to include in gross income. It is in addition to any regular income tax on that amount.
Generally, if you are under age 59½, you must pay a 10% additional tax on the distribution of any assets (money or other property) from your traditional IRA. Distributions before you are age 59½ are called early distributions.
Exceptions
There are several exceptions to the age 59½ rule. Even if you receive a distribution before you are age 59½, you may not have to pay the 10% additional tax if you are in one of the following situations.
You have unreimbursed medical expenses that are more than 7.5% of your AGI.
The distributions aren't more than the cost of your medical insurance due to a period of unemployment.
You are totally and permanently disabled.
You are the beneficiary of a deceased IRA owner.
You are receiving distributions in the form of an annuity.
The distributions aren't more than your qualified higher education expenses.
You use the distributions to buy, build, or rebuild a first home.
The distribution is due to an IRS levy of the IRA or retirement plan.
The distribution is a qualified reservist distribution.
The distribution is a qualified birth or adoption distribution.
Most of these exceptions are explained below.
Note. Distributions that are timely and properly rolled over, as discussed in chapter 1 of Pub. 590-A, aren't subject to either regular income tax or the 10% additional tax. Certain withdrawals of excess contributions after the due date of your return are also tax free and therefore not subject to the 10% additional tax. (See Excess Contributions Withdrawn After Due Date of Return in chapter 1 of Pub. 590-A.) This also applies to transfers incident to divorce, as discussed under Can You Move Retirement Plan Assets? in chapter 1 of Pub. 590-A.
Receivership distributions. Early distributions (with or without your consent) from savings institutions placed in receivership are subject to this tax unless one of the above exceptions applies. This is true even if the distribution is from a receiver that is a state agency.
Unreimbursed medical expenses. Even if you are under age 59½, you don't have to pay the 10% additional tax on distributions that aren't more than: The amount you paid for unreimbursed medical expenses during the year of the distribution, minus
7.5% of your AGI (defined next) for the year of the distribution. You can only take into account unreimbursed medical expenses that you would be able to include in figuring a deduction for medical expenses on Schedule A (Form 1040). You don't have to itemize your deductions to take advantage of this exception to the 10% additional tax.
Adjusted gross income (AGI). This is the amount on Form 1040, 1040-SR, or 1040-NR, line 11.
Medical insurance. Even if you are under age 59½, you may not have to pay the 10% additional tax on distributions during the year that aren't more than the amount you paid during the year for medical insurance for yourself, your spouse, and your dependents. You won't have to pay the tax on these amounts if all of the following conditions apply. You lost your job.
You received unemployment compensation paid under any federal or state law for 12 consecutive weeks because you lost your job.
You receive the distributions during either the year you received the unemployment compensation or the following year.
You receive the distributions no later than 60 days after you have been reemployed.
Disabled. If you become disabled before you reach age 59½, any distributions from your traditional IRA because of your disability aren't subject to the 10% additional tax. You are considered disabled if you can furnish proof that you can't do any substantial gainful activity because of your physical or mental condition. A physician must determine that your condition can be expected to result in death or to be of long, continued, and indefinite duration.
Beneficiary. If you die before reaching age 59½, the assets in your traditional IRA can be distributed to your beneficiary or to your estate without either having to pay the 10% additional tax. However, if you inherit a traditional IRA from your deceased spouse and elect to treat it as your own (as discussed under What if You Inherit an IRA, earlier), any distribution you later receive before you reach age 59½ may be subject to the 10% additional tax.
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Annuity. You can receive distributions from your traditional IRA that are part of a series of substantially equal payments over your life (or your life expectancy), or over the lives (or the joint life expectancies) of you and your beneficiary, without having to pay the 10% additional tax, even if you receive such distributions before you are age 59½. You must use an IRS-approved distribution method and you must take at least one distribution annually for this exception to apply. The “required minimum distribution method,” when used for this purpose, results in the exact amount required to be distributed, not the minimum amount. There are two other IRS-approved distribution methods that you can use. They are generally referred to as the “fixed amortization method” and the “fixed annuitization method.” These two methods aren't discussed in this publication because they are more complex and generally require professional assistance. For information on these methods, see Revenue Ruling 2002-62, which is on page 710 of Internal Revenue Bulletin 2002-42 at IRS.gov/pub/irs-irbs/irb02-42.pdf.
Recapture tax for changes in distribution method under equal payment exception. You may have to pay an early distribution recapture tax if, before you reach age 59½, the distribution method under the equal periodic payment exception changes (for reasons other than your death or disability). The tax applies if the method changes from the method requiring equal payments to a method that wouldn't have qualified for the exception to the tax. The recapture tax applies to the first tax year to which the change applies. The amount of tax is the amount that would have been imposed had the exception not applied, plus interest for the deferral period. You may have to pay the recapture tax if you don't receive the payments for at least 5 years under a method that qualifies for the exception. You may have to pay it even if you modify your method of distribution after you reach age 59½. In that case, the tax applies only to payments distributed before you reach age 59½. Report the recapture tax and interest on line 4 of Form 5329. Attach an explanation to the form. Don't write the explanation next to the line or enter any amount for the recapture on line 1 or 3 of the form.
One-time switch. If you are receiving a series of substantially equal periodic payments, you can make a one-time switch to the required minimum distribution method at any time without incurring the additional tax. Once a change is made, you must follow the required minimum distribution method in all subsequent years.
Higher education expenses. Even if you are under age 59½, if you paid expenses for higher education during the year, part (or all) of any distribution may not be subject to the 10% additional tax. The part not subject to the tax is generally the amount that isn't more than the qualified higher education expenses (defined next) for the year for education furnished at an eligible educational institution (defined below). The education must be for you, your spouse, or the children or grandchildren of you or your spouse. When determining the amount of the distribution that isn't subject to the 10% additional tax, include qualified higher education expenses paid with any of the following funds. Payment for services, such as wages.
A loan.
A gift.
An inheritance given to either the student or the individual making the withdrawal.
A withdrawal from personal savings (including savings from a qualified tuition program). Don't include expenses paid with any of the following funds. Tax-free distributions from a Coverdell education savings account.
Tax-free part of scholarships and fellowships.
Pell grants.
Employer-provided educational assistance.
Veterans' educational assistance.
Any other tax-free payment (other than a gift or inheritance) received as educational assistance.
Qualified higher education expenses. Qualified higher education expenses are tuition, fees, books, supplies, and equipment required for the enrollment or attendance of a student at an eligible educational institution. They also include expenses for special needs services incurred by or for special needs students in connection with their enrollment or attendance. In addition, if the individual is at least a half-time student, room and board are qualified higher education expenses.
Eligible educational institution. This is any college, university, vocational school, or other postsecondary educational institution eligible to participate in the student aid programs administered by the U.S. Department of Education. It includes virtually all accredited, public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. The educational institution should be able to tell you if it is an eligible educational institution.
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First home. Even if you are under age 59½, you don't have to pay the 10% additional tax on up to $10,000 of distributions you receive to buy, build, or rebuild a first home. To qualify for treatment as a first-time homebuyer distribution, the distribution must meet all the following requirements. It must be used to pay qualified acquisition costs (defined next) before the close of the 120th day after the day you received it. It must be used to pay qualified acquisition costs for the main home of a first-time homebuyer (defined below) who is any of the following. Yourself. Your spouse. Your or your spouse's child. Your or your spouse's grandchild. Your or your spouse's parent or other ancestor. When added to all your prior qualified first-time homebuyer distributions, if any, total qualifying distributions can't be more than $10,000. . If both you and your spouse are first-time homebuyers (defined later), each of you can receive distributions up to $10,000 for a first home without having to pay the 10% additional tax..
Qualified acquisition costs. Qualified acquisition costs include the following items. Costs of buying, building, or rebuilding a home.
Any usual or reasonable settlement, financing, or other closing costs.
First-time homebuyer. Generally, you are a first-time homebuyer if you had no present interest in a main home during the 2-year period ending on the date of acquisition of the home which the distribution is being used to buy, build, or rebuild. If you are married, your spouse must also meet this no-ownership requirement.
Date of acquisition. The date of acquisition is the date that: You enter into a binding contract to buy the main home for which the distribution is being used, or
The building or rebuilding of the main home for which the distribution is being used begins.
. If you received a distribution to buy, build, or rebuild a first home and the purchase or construction was canceled or delayed, you could generally contribute the amount of the distribution to an IRA within 120 days of the distribution and not pay income tax or the 10% additional tax on early distributions. This contribution is treated as a rollover contribution to the IRA..
Qualified reservist distributions. A qualified reservist distribution isn't subject to the additional tax on early distributions.
Definition. A distribution you receive is a qualified reservist distribution if the following requirements are met. You were ordered or called to active duty after September 11, 2001.
You were ordered or called to active duty for a period of more than 179 days or for an indefinite period because you are a member of a reserve component.
The distribution is from an IRA or from amounts attributable to elective deferrals under a section 401(k) or 403(b) plan or a similar arrangement.
The distribution was made no earlier than the date of the order or call to active duty and no later than the close of the active duty period.
Reserve component. The term “reserve component” means the: Army National Guard of the United States,
Army Reserve,
Naval Reserve,
Marine Corps Reserve,
Air National Guard of the United States,
Air Force Reserve,
Coast Guard Reserve, or
Reserve Corps of the Public Health Service.
Qualified birth or adoption distribution. A qualified birth or adoption distribution is any distribution from an applicable eligible retirement plan if made during the 1-year period beginning on the date on which your child was born or the date on which the legal adoption of your child was finalized. A qualified birth or adoption distribution must not exceed $5,000 per adoption or birth. In addition, an eligible adoptee is any individual (other than the child of the taxpayer’s spouse) who has not reached age 18 or is physically or mentally incapable of self-support.
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