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If you take money from a traditional or Roth IRA before age 59½, you may owe a 10% federal additional tax on the portion of the distribution included in your gross income, on top of any regular income tax. A specific IRS exception can remove that additional tax for some or all of a distribution, but financial hardship by itself is not a blanket exemption.
When the 10% IRA additional tax applies
The IRS generally treats an IRA distribution made before you reach age 59½ as an early distribution. Unless an exception applies, the additional tax is generally 10% of the amount included in gross income. It is separate from regular federal income tax on that taxable amount. The IRS summarizes the rule in Topic no. 557 and explains IRA distributions in Publication 590-B.
For example, if $8,000 of an early distribution is taxable and no exception applies, the general additional tax is $800, in addition to regular income tax on the $8,000. This illustrates the federal rule; it is not a calculation of an individual’s total tax liability.
What portion of a withdrawal is taxable?
The 10% tax is not automatically charged on every dollar that leaves an IRA. It generally applies to the portion included in gross income, and the taxable amount depends on the account and the taxpayer’s records.
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Traditional IRAs
Traditional IRA distributions may be fully or partly taxable. Nondeductible contributions and other basis can affect the taxable portion, so do not assume the account balance or gross withdrawal is the amount subject to the additional tax. Use the applicable Form 8606 instructions and records to determine basis.
Roth IRAs
Roth IRA distributions follow ordering rules that determine which amounts are treated as coming out first. Taxable conversions or rollovers can also raise separate recapture questions. The Instructions for Form 5329 describe these issues; review them alongside the applicable Form 8606 instructions and your transaction history.
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Which exceptions may apply to an IRA?
Exceptions are specific statutory categories with their own conditions and limits—not a general waiver for needing money. The IRS overview in Topic no. 557 and the year-specific Form 5329 instructions are the places to check eligibility and reporting for the return year you are filing.
- Unreimbursed medical expenses: The exception can cover qualifying expenses above 7.5% of adjusted gross income, only up to the amount above that threshold. See Publication 590-B (2025) for the published threshold and applicable detail.
- Higher education: Certain qualified higher-education expenses can qualify, subject to the statutory requirements.
- First home: A qualifying first-time home purchase may qualify, subject to a $10,000 lifetime limit. The limit is described in Topic no. 557 and the 2025 Form 5329 instructions.
- Disability or death: Qualifying distributions due to disability, or distributions to a beneficiary or estate after the IRA owner’s death, may qualify.
- Health-insurance premiums during unemployment: Certain premiums may qualify if the taxpayer meets the unemployment and other requirements.
- Substantially equal periodic payments: A qualifying series of payments may be excepted if it meets the applicable rules. Changing or stopping a series can have tax consequences, so get tax advice before altering it.
- Other specified categories: The current Form 5329 instructions include provisions for terminal illness, qualified domestic-abuse distributions, and eligible emergency-expense distributions. Each has statutory definitions and conditions; verify the rules and exception codes for the tax year at issue.
These exceptions concern the additional tax; they do not automatically make an otherwise taxable distribution tax-free as ordinary income.
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IRA exceptions are not the same as workplace-plan exceptions
Rules for an IRA should not be inferred from rules for a 401(k) or another workplace retirement plan. For example, the age-55 separation-from-service exception listed in the Form 5329 instructions applies to qualified retirement plans and expressly does not apply to IRAs. A workplace-plan exception therefore does not automatically excuse an IRA distribution.
Does a divorce order waive the penalty?
No. The IRS says a court-ordered distribution from a traditional IRA to pay a former spouse remains subject to the additional tax unless another exception applies. A transfer between spouses or a distribution incident to divorce is not, by itself, an exception to the early-distribution tax. See the IRS Topic no. 557 guidance and its divorce-order FAQ.
How to report an exception and determine whether Form 5329 is needed
A Form 1099-R code does not always settle whether you owe the additional tax. If code 1 is correctly shown and the entire distribution is subject to the tax, the IRS says Form 5329 may not be required; the additional tax can generally be reported directly on Schedule 2 (Form 1040). If an exception applies but is not indicated on the 1099-R, or it applies to only part of the distribution, Form 5329 is generally used to claim it. Follow the instructions for the year on your return.
- Determine the taxable amount. Use the distribution details, basis records, and applicable Form 8606 rules; Roth distributions also require the ordering rules to be considered.
- Check the exception conditions. Confirm that the specific category applies and identify the amount it covers. Do not treat hardship alone as sufficient.
- Review the 1099-R and return-year instructions. Check the distribution code and the relevant Schedule 2 and Form 5329 instructions for the year being filed.
- Report the tax or claim the exception as directed. If you are not otherwise required to file a return, the 2025 Form 5329 instructions say you may need to file Form 5329 by itself. Confirm the rules for the applicable year.
Withholding and rollover questions are separate
Federal income tax withholding from an IRA distribution is separate from whether the 10% additional tax applies. The IRS says withholding generally applies unless you elect out; if you do, estimated tax payments may be needed to avoid an underpayment problem. A qualifying rollover or transfer may avoid the additional tax when the applicable rollover requirements are followed, but a distribution and a rollover are not interchangeable without regard to those rules. Check Topic no. 557 before moving the money.
Check the rules for the tax year you are filing
The additional tax is a federal rule; state tax treatment and the effect of basis or Roth ordering depend on the taxpayer’s circumstances and may involve separate rules. The Form 5329 instructions cited here are for 2025. Use the instructions for the actual return year, because exception details and filing procedures can change.
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