Form 5329 is used to report additional taxes on distributions from retirement accounts such as IRAs, qualified retirement plans, Coverdell ESAs, HSAs, and ABLE accounts. The form includes specific exceptions to the 10% additional tax on early distributions. These exceptions are designed to allow individuals to access funds under certain life events or circumstances without incurring the penalty.
Exceptions to the 10% Additional Tax on Early Distributions
- Age 55 or older (separation from service): Distributions from a qualified employer retirement plan (not IRAs) made after separation from service in or after the year you reach age 55 (age 50 for certain public safety employees). (Exception 01)
- Substantially equal periodic payments (SEPP): Distributions taken as part of a series of substantially equal periodic payments based on life expectancy and continued for at least 5 years or until age 59½, whichever is longer. (Exception 02)
- Disability: Distributions due to total and permanent disability under IRS rules. (Exception 03)
- Death: Distributions made to a beneficiary after the account owner’s death. (Exception 04)
- Medical expenses: Distributions up to the amount of unreimbursed medical expenses exceeding 7.5% of AGI. (Exception 05)
- Qualified domestic relations order (QDRO): Distributions made to an alternate payee under a court-approved QDRO (employer plans only). (Exception 06)
- Health insurance (unemployed individuals): IRA distributions used to pay health insurance premiums while unemployed. (Exception 07)
- Higher education expenses: IRA distributions used for qualified higher education expenses. (Exception 08)
- First-time home purchase: IRA distributions up to a $10,000 lifetime limit for a first home purchase. (Exception 09)
- IRS levy: Distributions made due to an IRS levy on the retirement account. (Exception 10)
- Qualified reservist distributions: Distributions to military reservists called to active duty for at least 180 days. (Exception 11)
- Correctly coded distributions: Certain Form 1099-R distributions that are not actually subject to the penalty when properly reported (based on distribution codes and taxpayer eligibility). (Exception 12)
- Section 457 plans: Distributions from governmental 457(b) plans (with limitations). (Exception 13)
- Pre-1986 plan rules: Distributions from employer plans under pre-1986 separation and election rules. (Exception 14)
- ESOP dividends: Certain dividends from employee stock ownership plans under IRC §404(k). (Exception 15)
- Pre-1982 annuity contributions: Distributions attributable to annuity investments before August 14, 1982. (Exception 16)
- Phased retirement annuities: Certain federal phased retirement annuity payments. (Exception 17)
- Automatic enrollment withdrawals: Permitted withdrawals under IRC §414(w). (Exception 18)
- Qualified birth or adoption: Up to $5,000 per child for qualified birth or adoption distributions, with repayment allowed. (Exception 19)
- Terminal illness: Distributions made after physician certification of a terminal illness (life expectancy ≤ 84 months). (Exception 20)
- Corrective distributions: Return of excess contributions (and earnings) by the tax deadline, including extensions. (Exception 21)
- Domestic abuse distributions: Up to $10,000 (or 50% of account balance if less) for victims of domestic abuse, with repayment options. (Exception 22)
- Emergency personal expense distributions: Up to $1,000 per year for unforeseeable or immediate personal or family emergency expenses, with repayment allowed. (Exception 23)
If more than one exception applies, Form 5329 instructions may require entering code “99” depending on the specific line and situation.
Source:
Form 5329 Instructions (2025)
Disclaimer: Always verify details with the current Federal or State Department of Revenue Forms and Instructions. For complex situations, consult a CPA or tax attorney.