IRS Penalties
- Avoiding IRS Penalties
- Common IRS Penalties
- Early Distribution Penalties
- Penalty Exceptions for Early Distributions
- Appealing a Penalty
- IRS Interest Waiver
More Tax Topics
- Business Structures
- Start-up Costs
- Depreciation
- Car Expenses
- Home Office Deduction
- Travel Expenses
- Hiring Workers
- Meals and Entertainment
- Retirement
- Top Tax Myths
- Per Diem Rates - IRS Publication 1542 Oct 2011 for Travel Within the Continental U.S (for employers who pay a per diem allowance to employees)
Quick Links
Hot Topics
Need Some Deductions for 2011?
Don't overlook these!
Updated for 2011
Early Distribution Penalties
Early Distribution Penalties
Penalty for Distributions Before Age 59 1/2:
Taking money out of a tax-deferred retirement plan before age 59 1/2 can result in an early distribution penalty of 10% of the amount distributed.
Early distribution exceptions: There are a number of exceptions allowing early distributions without incurring a penalty.
The 10% penalty is assessed on the amount of any early distribution from:
- A qualified corporate or Keogh plan
- Qualified annuity plan
- Tax-sheltered annuity plan
- IRA
SIMPLE-IRA distributions before age 59 1/2:
If a distribution is made from a SIMPE-IRA to a participant before age 59 1/2 in the first two years of plan participation, a penalty will be assessed.
- Penalty: 25% of the early distribution.
This penalty generally does not apply to Section 457 government plans of tax-exempt employers or state or local governments.
However, if a rollover is made to a governmental Section 457 plan, where the funds came from:
- A qualified plan
- 403(b) annuity, or
- IRA, then...a penalty may apply to a later distribution from the Section 457 to the extent of the rollover.
Reporting Early Distribution Penalties
If you:
- Received a distribution before age 59 1/2, and
- Do not qualify for a penalty exception, and
- Code 1 is shown in Box 7 of your Form 1099-R...then, do the following:
- Multiply the taxable amount of the distribution by 10%.
- Enter the amount of the penalty on Line 60 of Form 1040.
- Write "No" next to Line 60 to indicate that Form 5329 does not have
to be filed.
- If you are subject to the penalty and Code 1 is not entered in Box 7 of Form 1099-R, you must file Form 5329.
- You may also have to file Form 5329 to claim a penalty exception.
- However, filing Form 5239 is not required if you qualify for the rollover exception or
- You qualify for another exception that is correctly coded in Box 7 of Form 1099-R.
Copyright © 2008-2012 Larry Villano. All rights reserved.