What this line means
Additional taxes on early distributions, excess contributions, or missed required minimum distributions from IRAs, 401(k)s, 403(b)s, and other tax-favored retirement accounts. You calculate these penalties on Form 5329. The most common tax here is the 10% early distribution penalty on withdrawals taken before age 59-1/2 that do not qualify for an exception.
Does this apply to you?
- You took a distribution from an IRA or 401(k) before age 59-1/2
- You contributed more than the annual limit to an IRA or retirement plan and did not correct the excess before the filing deadline
- You are 73 or older and did not take your full required minimum distribution (RMD) from a traditional IRA or employer plan
- You received a distribution from a Coverdell ESA or 529 plan that was not used for qualified education expenses
Easy to overlook
The 10% penalty has over a dozen exceptions Not every early distribution triggers the 10% penalty. Exceptions include distributions for a first-time home purchase (up to $10,000 from an IRA), qualified higher education expenses, certain medical expenses exceeding 7.5% of AGI, substantially equal periodic payments (SEPP/72(t)), and separation from service after age 55 (employer plans only, not IRAs). 1 Filers who assume they owe the penalty sometimes pay it unnecessarily when an exception applies. Form 5329 is where you claim the exception. IRS Form 5329 Instructions — Additional Taxes on Qualified Plans
The penalty for missing an RMD is 25%, not 10% If you are 73 or older and fail to take your full required minimum distribution, the penalty is 25% of the amount you should have withdrawn but did not. 2 If you correct the shortfall within the correction window (generally by the end of the second year following the missed distribution), the penalty drops to 10%. Missing an RMD from a forgotten account or misunderstanding the calculation can trigger a penalty of thousands of dollars. General filing pattern — early withdrawal penalty missed on direct distributions
Watch out for this
Assuming the 10% penalty was already withheld by your plan administrator. The 1099-R from your retirement plan may show 10% federal withholding in Box 4, but that is income tax withholding, not the early distribution penalty. The early distribution penalty is a separate additional tax that you calculate on Form 5329 and report here. Withholding and penalties are different obligations.
Footnotes
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IRS Form 5329 Instructions, Part I, Additional Tax on Early Distributions. https://www.irs.gov/instructions/i5329 ↩
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IRS Form 5329 Instructions, Part IX, Additional Tax on Excess Accumulation. https://www.irs.gov/instructions/i5329 ↩