USTaxPenaltySaverEarly Withdrawal Penalty IRC § 72(t)
Taking money from your IRA or 401(k) before 59½? The 10% penalty applies unless you qualify for an exception.
Over 15 penalty exceptions exist. Check if you qualify for penalty-free withdrawals.
How the 10% Penalty Works
The penalty is in addition to regular income tax on your distribution
Total Tax Impact
Example: $10,000 early withdrawal in 22% tax bracket
You only receive $6,800 after mandatory 20% withholding on 401(k) distributions
Key Facts
- 1Age 59½ is the magic number
Distributions after 59½ are never subject to the 10% penalty
- 2Penalty applies to taxable portion
Roth contributions and after-tax basis are not penalized
- 3Reported on Form 5329
Use Part I to calculate penalty or claim exception
Form 1099-R Distribution Codes
These codes appear in Box 7 of your Form 1099-R and determine if penalty applies
| Code | Description | 10% Penalty? |
|---|---|---|
| 01 | Early distribution, no known exception | Yes |
| 02 | Early distribution with exception | No |
| 03 | Disability | No |
| 04 | Death | No |
| 05 | Prohibited transaction | Yes |
| 07 | Normal distribution (59½+) | No |
| 08 | Excess contributions | No |
| 09 | Cost of life insurance | No |
| 10 | Inherited IRA (10-year rule) | No |
| 12 | Excess IRA distribution returned | No |
| 13 | Qualified birth/adoption ($5,000) | No |
| 14 | Qualified disaster | No |
| 15 | Terminal illness | No |
| 16 | Emergency personal expense | No |
| 17 | Domestic abuse victim | No |
Codes 13-17 are SECURE 2.0 additions (2024+). Additional codes exist for less common situations.
Common Penalty Exceptions
Detailed breakdown of the most frequently used exceptions
SEPP (72t Distributions)
Take substantially equal periodic payments based on life expectancy.
- • Must continue 5 years OR until 59½ (whichever is longer)
- • Three calculation methods: RMD, amortization, annuity
- • Breaking schedule triggers all avoided penalties + interest
- • Applies to IRAs and employer plans
Rule of 55
Penalty-free 401(k)/403(b) withdrawals after separation from service at 55+.
- • Must leave job during or after year you turn 55
- • Only applies to current employer's plan
- • Age 50 for qualified public safety employees
- • Does NOT apply to IRAs
First-Time Homebuyer
Up to $10,000 lifetime from IRA for home purchase.
- • "First-time" = no ownership in past 2 years
- • Must use funds within 120 days
- • $10,000 lifetime limit per person
- • IRAs only (not 401k)
Medical Expenses
Unreimbursed medical expenses exceeding 7.5% of AGI.
- • Only amount exceeding 7.5% AGI threshold
- • Expenses must be same year as withdrawal
- • Includes medical insurance premiums if unemployed
- • Applies to IRAs and employer plans
Higher Education
Qualified education expenses for you, spouse, children, or grandchildren.
- • Tuition, fees, books, supplies, equipment
- • Room & board if enrolled at least half-time
- • Must be at eligible institution
- • IRAs only (not 401k)
SECURE 2.0 Exceptions (2024+)
New penalty-free distribution options added by SECURE 2.0 Act.
- • Emergency expenses: $1,000/year for personal emergencies
- • Domestic abuse: $10,000 or 50% of account
- • Terminal illness: Certified life expectancy <84 months
- • Disaster distributions: $22,000 per FEMA disaster
IRA vs. 401(k) Exception Availability
Some exceptions only apply to IRAs, others only to employer plans
| Exception | IRA | 401(k)/403(b) |
|---|---|---|
| SEPP (72t) | Yes | Yes |
| Death/Disability | Yes | Yes |
| Medical Expenses (>7.5% AGI) | Yes | Yes |
| First-Time Homebuyer ($10k) | Yes | No |
| Higher Education | Yes | No |
| Health Insurance (Unemployed) | Yes | No |
| Rule of 55 (Separation at 55+) | No | Yes |
| QDRO (Divorce) | No | Yes |
Tip: Roll 401(k) to IRA only if you need IRA-specific exceptions. Keep in 401(k) for Rule of 55 access.
Early Withdrawal Penalty FAQs
The early withdrawal penalty (IRC § 72(t)) is an additional 10% tax on distributions from retirement accounts taken before age 59½. This penalty is in addition to regular income tax on the distribution. The penalty is designed to discourage using retirement savings before retirement.
The 10% early withdrawal penalty applies to Traditional IRAs, Roth IRAs (on earnings), SEP IRAs, SIMPLE IRAs, 401(k)s, 403(b)s, 457(b)s (governmental), and other qualified retirement plans. Roth IRA contributions (not earnings) can be withdrawn penalty-free at any time since they were made with after-tax dollars.
Key exceptions include: death or disability, substantially equal periodic payments (SEPP/72t), medical expenses exceeding 7.5% of AGI, health insurance premiums while unemployed, qualified higher education expenses, first-time home purchase ($10,000 lifetime limit), IRS levy, qualified reservist distributions, and birth/adoption expenses ($5,000 per event).
Substantially Equal Periodic Payments (SEPP) allows penalty-free early distributions if you commit to taking equal payments annually based on your life expectancy. You must continue for at least 5 years or until age 59½, whichever is longer. Breaking the schedule retroactively triggers all avoided penalties plus interest.
Yes, the "Rule of 55" allows penalty-free distributions from your current employers 401(k) or 403(b) if you separate from service during or after the year you turn 55 (age 50 for qualified public safety employees). This exception does NOT apply to IRAs or previous employers plans unless you roll them into your current employers plan first.
No, Roth IRA contributions can be withdrawn tax-free and penalty-free at any time because they were made with after-tax dollars. However, earnings on those contributions are subject to the 10% penalty if withdrawn before age 59½ AND before the account is 5 years old. Qualified distributions (after 59½ and 5-year rule) are completely tax and penalty-free.
You can withdraw up to $10,000 from an IRA (Traditional or Roth) without the 10% penalty for qualified first-time homebuyer expenses. "First-time" means you (and spouse) havent owned a home in the past 2 years. The funds must be used within 120 days for acquisition costs. This is a lifetime limit and applies to IRAs only, not 401(k)s.
SECURE 2.0 (2022) added several new penalty exceptions: emergency personal expense withdrawals ($1,000/year), domestic abuse victim distributions ($10,000 or 50% of account), terminal illness distributions, and qualified disaster distributions ($22,000 per disaster). These generally took effect in 2024.
Calculate Your Early Withdrawal Penalty
Check if you qualify for an exception and see your potential penalty
This calculator provides estimates for informational purposes only. Early withdrawal penalty rules and exceptions can be complex. Consult a qualified tax professional for advice regarding your specific situation. We do not provide legal, tax, or financial advice and do not represent you before the IRS.