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  • tara berks
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    Tax Topic 557

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    Refundtalk
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    Topic 557 – Additional Tax on Early Distributions from Traditional and Roth IRAs
    To discourage the use of IRAs distributions for purposes other than retirement, you’ll be assessed 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 59½. The additional 10% tax applies to the part of the distribution that you have to include in gross income. It’s in addition to any regular income tax on that amount.

    No Additional 10% Tax
    Distributions that you roll over or transfer to another IRA or qualified retirement plan aren’t subject to this additional 10% tax. This is true as long as you follow the one IRA-to-IRA rollover per year rule. For more information on rollovers, refer to Topic 413, Rollovers from Retirement Plans, and visit Do I Need to Report the Transfer or Rollover of an IRA or Retirement Plan on My Tax Return?

    Exceptions to the additional 10% tax apply 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 for your life (or life expectancy) or the joint lives (or joint life expectancies) of you and your designated beneficiary
    Qualified first-time homebuyer distributions
    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-B (PDF), Distributions from Individual Retirement Arrangements (IRAs), for more information on these exceptions and on IRA distributions generally.

    Other exceptions apply to distributions from other qualified employee retirement plans. For information on these exceptions, refer to Topic 558 or Publication 575, Pension and Annuity Income.

    Reporting the Additional 10% Tax
    The additional 10% tax is reported on Form 5329 (PDF), Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts. However, you don’t have to file Form 5329 if your Form 1099-R (PDF), Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc., shows distribution code 1 in Box 7. In this instance, you need only enter the additional 10% tax directly on the appropriate line of your Form 1040 (PDF), U.S. Individual Income Tax Return. If you qualify for one of the exceptions to the additional 10% tax, but your Form 1099-R doesn’t 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.

    Tax Withholding and Estimated Tax
    Federal income tax withholding is required for distributions from IRAs unless you elect out of withholding on the distribution. If you elect out of withholding, you may have to make estimated tax payments. For more information on withholding and estimated tax payments, refer to Publication 505, Tax Withholding and Estimated Tax.

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