How to Know if I'm Subject to a 10-Percent Early Withdrawal Penalty

By: Alia Nikolakopulos

If you withdraw from your retirement plan before you reach normal retirement age, the IRS may impose an early withdrawal penalty unless you meet certain exceptions. Some employees and public safety officers who separate from employers before normal IRS retirement age may not have to pay the penalty, but you may be eligible for other exceptions even if you haven’t separated from your employer.

Step 1

Factor in your age at the time of the withdrawal. If you’re under age 59 ½ on the date of your IRA distribution, you may be subject to the 10-percent penalty.

Step 2

Look at the distribution code on your 1099-R. Distribution codes are shown in Box 7. If the code is a 2, 3, 4 or 7, your distribution has a known exception for the penalty. This means your retirement plan administrator knows the withdrawal isn’t subject to the 10-percent penalty and has noted your 1099-R accordingly. If you have a Roth IRA, an alpha code “T” may also appear. If you see code 1 in Box 7, the plan administrator notes you made an early withdrawal, but does not know of any penalty exceptions that apply to you. For early Roth IRA withdrawals with no known exceptions, you’ll see alpha code “J.”

Step 3

Check IRS exception lists. If your 1099-R indicates the early withdrawal penalty may apply to your distribution, look at the instructions for IRS Form 5329. A list of exceptions to the penalty is included in the instructions for Part 1, line 2. For example, if you use your funds to pay for medical insurance while you’re unemployed, for higher education expenses, or for purchase of a first home, you may not have to pay the penalty.


  • Some exceptions apply only to withdrawals from specific types of retirement plans. If you qualify for a waiver, confirm that you have an eligible plan before you report the exception on Form 5329.


About the Author

With a background in taxation and financial consulting, Alia Nikolakopulos has over a decade of experience resolving tax and finance issues. She is an IRS Enrolled Agent and has been a writer for these topics since 2010. Nikolakopulos is pursuing Bachelor of Science in accounting at the Metropolitan State University of Denver.

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