Taking money out of a traditional IRA or an employer retirement plan before age 59 1/2 usually brings an extra tax on top of regular income tax. The IRS adds a 10% additional tax, often called the early withdrawal penalty, on top of the tax you owe on the taxable part of the distribution. There are many exceptions, and several were added by the SECURE 2.0 Act. This page explains how the tax works, the main exceptions and how to report one.
How the 10% additional tax works
The tax applies to the part of an early distribution that is included in your income. You report the distribution on your return and pay income tax at your regular rate, and the 10% additional tax is added on top. It is not a penalty the IRS assesses for a mistake. It is part of the tax rules for retirement savings, and it applies automatically unless an exception fits.
Example (hypothetical). You are 42 and withdraw $20,000 from a traditional IRA with no basis, and no exception applies. The $20,000 is added to your taxable income for the year. The 10% additional tax is $2,000. If you were in the 22% bracket, the regular tax on the $20,000 would be roughly $4,400, so the total cost would be about $6,400 before any state tax. If the money came from a SIMPLE IRA within the first 2 years of participation, the additional tax would be 25%, or $5,000.
Distributions from governmental 457(b) plans are generally not subject to the 10% tax, except for amounts attributable to rollovers from another plan or an IRA.
Exceptions
The IRS lists many exceptions, and they differ between employer plans and IRAs. These are some of the main ones.
| Exception | Key terms | Plans / IRAs |
|---|---|---|
| Age 59 1/2 | Distribution after reaching that age | Both |
| Disability | Total and permanent disability | Both |
| Death | Distribution after the owner's death | Both |
| Medical expenses | Unreimbursed amount above 7.5% of adjusted gross income | Both |
| Equal payments | A series of substantially equal payments | Both |
| Separation from service | Separation at age 55 or later (50 for certain public safety employees) | Employer plans only |
| First-time homebuyer | Up to $10,000 | IRAs only |
| Education | Qualified higher education expenses | IRAs only |
| Health insurance while unemployed | Premiums paid while unemployed | IRAs only |
| Birth or adoption | Up to $5,000 per child | Both |
| Domestic abuse victim | Lesser of $10,000 or 50% of the account, for distributions after 12/31/2023 | Both |
| Emergency personal expense | One per calendar year, up to the lesser of $1,000 or the vested balance over $1,000, after 12/31/2023 | Both |
| Terminal illness | Certified by a physician | Employer plans only, per the IRS table |
| Federally declared disaster | Up to $22,000 | Both |
Other exceptions include qualified reservists called to active duty, a levy by the IRS, distributions under a qualified domestic relations order, rollovers completed within the allowed period, and corrective distributions. The list on the IRS website is long and has conditions, so read the details for your plan type. Some of the newer exceptions came from the SECURE 2.0 Act, although the IRS table does not label them that way.
A distribution to correct an excess IRA contribution, made by the due date of the return including extensions, is not subject to the 10% additional tax starting December 29, 2022, according to Publication 590-A. See our page on excess contributions and RMD penalties.
Reporting the tax on Form 5329
Form 1099-R shows a distribution code in box 7. If the code shows that no exception applies but one actually does, you file Form 5329 and enter the exception code that fits. The 2025 Form 5329 instructions list exception codes on line 2, from 01 to 23, and use 99 if more than one exception applies. If you do not otherwise have to file a tax return, you file Form 5329 by itself and cannot e-file it.
How long it applies
The tax is triggered by each early distribution in the year it occurs. It is a flat percentage, not a monthly charge. If the additional tax is left off your return, the IRS can bill it with interest, and accuracy-related penalties may apply to the underpayment.
How to avoid it
- Check for an exception before you request a distribution, and keep proof such as medical bills, a physician's certification, or closing documents for a first home.
- Consider a loan, if your plan allows it, or a rollover, which is not a distribution when completed within the allowed period.
- If a withdrawal is unavoidable, ask your plan whether it will report the correct code in box 7.
- Compare the full cost of a withdrawal, including income tax and the 10% tax, with other sources of funds.
- Plan Roth conversions with care. Our guide on Roth conversions covers the timing issues.
If you owe it and think an exception applies
Claim the exception on Form 5329 and keep documentation. If the IRS sends a notice, respond by the date on it with proof. Reasonable-cause relief is not the usual route for this tax, because the question is whether a listed exception applies, so the records for the exception matter most.
How we can help
We can review a planned withdrawal to see which exception might fit, prepare Form 5329, and respond to an IRS notice about the 10% tax. We also include retirement withdrawals in year-end tax planning. Because the right answer depends on your plan type, age and reason for the withdrawal, this page is general information and not advice for your situation. Contact us to talk it through.
Frequently asked questions
Does the 10% tax apply to Roth IRAs?
It can, depending on how much of the distribution is taxable. Roth IRAs have their own ordering and qualified-distribution rules, so ask a professional before you take money out.
Is the early withdrawal penalty the same as income tax?
No. It is an additional tax on top of income tax on the taxable part of the distribution.
Can I avoid the tax by rolling the money over?
A completed rollover within the allowed period is not an early distribution. The deadline and conditions are strict, so check them before acting.
Do I owe the 10% tax if I withdraw at age 59 1/2?
No. The tax applies to distributions before reaching age 59 1/2, unless another exception applies.
Official sources
- IRS: Retirement topics, tax on early distributions
- IRS: Retirement topics, exceptions to tax on early distributions
- IRS: Instructions for Form 5329 (2025)
- IRS: Publication 590-A (2025)
This page is a plain-language summary. The official source controls if there is any difference.
General information only, not tax, legal or accounting advice for your situation. Rules, limits and deadlines change; confirm the current rules with the official source or a qualified professional before you act. Reading this page does not create a professional relationship with CPA Tax Payroll and Accounting Corp.