1099-R: Early Withdrawal Penalty
To discourage the use of pension funds for purposes other than normal retirement, the IRS imposes an additional 10% tax on certain early distributions of these funds. Early distributions are those you receive from a qualified retirement plan or deferred annuity contract before reaching age 59 1/2. The term "qualified retirement plan" means:
- A qualified employee plan such as a 401(k) plan,
- A qualified employee annuity plan,
- A tax–sheltered annuity plan for employees of public schools or tax–exempt organizations,
- An IRA other than an education IRA, or
If you have an early distribution from a SIMPLE IRA plan within the first 2 years of participation in the plan, the additional tax is 25%.
While an eligible State or local government section 457 deferred compensation plan is not a qualified retirement plan, any distribution attributable to amounts the plan received in a direct transfer or rollover from one of the other plans listed here would be subject to the 10% additional tax.
Distributions that are not taxable, such as distributions that you roll over to another qualified retirement plan or a distribution of your designated Roth IRA contributions are not subject to this 10% additional tax.
There are several exceptions to the age 59 1/2 rule. Even if you receive a distribution before you are age 59 1/2, you may not have to pay the 10% additional tax if you are in one of the following situations:
- you have unreimbursed medical expenses (>7.5% Adjusted Gross Income; after 2012, 10% if under age 65)
- the distributions are not more than the cost of your medical insurance
- you are disabled
- you are the beneficiary of a deceased IRA owner
- you are receiving distributions in the form of an annuity
- the distributions are not 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 qualified plan
- the distribution is a qualified reservist distribution.
How to enter our program: If any of the above exceptions apply to an early withdrawal that you are reporting, from the Federal Section of the program Other Taxes > Tax on Early Distribution. Enter the amount that is exempt in the field for "Early Distributions that are not subject to 10% tax" under Part 1, and select the reason from the drop-down menu for the field "Select the reason for exemption".
For further information on Withdrawals and Distributions see a sample form of the 1099-R, Click here.
For further instructions for form 1099-R, click Here.