Pulling money out of a 401(k) before age 59½ usually costs you a 10% additional federal tax on top of regular income tax. But there are many exceptions, and they are different for 401(k) plans than for IRAs.
This guide explains the tax, the exceptions in IRS Topic 558, how IRAs differ, how to report it on Schedule 2 and Form 5329, and worked examples, using IRS Topics 557 and 558 and the Instructions for Form 5329.
The IRS says the law imposes a 10% additional tax on certain early distributions from certain retirement plans, equal to 10% of the portion of the distribution that is includible in gross income. Early distributions are generally those received from a qualified retirement plan or deferred annuity contract before reaching age 59½. A qualified plan includes a section 401(a) plan such as a 401(k), a section 403(b) tax-sheltered annuity and an individual retirement account. The tax is in addition to regular income tax on the same money.
In general an eligible state or local government section 457 plan is not a qualified retirement plan, so its distributions are not subject to the 10% additional tax, except for amounts it received by direct transfer or rollover from a qualified plan. Rollovers to another qualified plan are not taxable and are not subject to the additional tax.
| Exception (IRS Topic 558) | Notes from the IRS |
|---|---|
| Separation from service after age 55 | Payments after you separate from service with your employer after attaining age 55. The Form 5329 instructions and Publication 575 say the separation must happen in or after the year you reach age 55 (an earlier separation does not qualify); see our Rule of 55 guide |
| Total and permanent disability | Distributions made because you are totally and permanently disabled |
| Terminal illness | Distributions made to you because you are terminally ill |
| Death | Distributions to your beneficiary or estate on or after your death |
| Substantially equal periodic payments | Over your life expectancy; from a plan other than an IRA you must separate from service before payments begin |
| Medical expenses | To the extent of deductible medical expenses above 7.5% of adjusted gross income |
| Qualified domestic relations order | Distributions to a spouse or former spouse as alternate payee |
| Birth or adoption | Up to $5,000 if the distribution is a qualified birth or adoption distribution from a defined contribution plan |
| Emergency and domestic abuse | Personal or family emergency expenses, and victims of domestic abuse by a spouse or domestic partner, for distributions after 12/31/2023. Emergency distributions are limited to one a year of up to $1,000; domestic abuse distributions to the lesser of 50% of the vested account or $10,000 (indexed for inflation), per IRS Notice 2024-55 |
| Public safety employees | Governmental plan, separated from service during or after the year of age 50 or 25 years of service |
| Long-term care insurance | New for distributions made after December 29, 2025: certain distributions from an employer defined contribution plan for certified long-term care insurance, capped at the least of the premiums, 10% of the vested balance and an inflation-indexed $2,600 (IRS Notice 2026-33; the 2026 Form 5329 instructions are still a draft) |
| Federally declared disaster, IRS levy, reservist | Also listed by the IRS |
The IRS list also includes some narrower items, such as certain dividends from employee stock ownership plans, phased retirement annuity payments for federal employees, private-sector firefighters and pension-linked emergency savings account distributions. For details see IRS Publication 575 and the Instructions for Form 5329.
The IRS says traditional and Roth IRAs carry the same 10% additional tax on early distributions unless an exception applies, and it applies to the part you must include in gross income. The IRA list differs from the employer-plan list: for example, IRAs have exceptions for up to $10,000 used in a qualified first-time home purchase and for qualified higher education expenses (the $10,000 cap applies to the home purchase), while the age-55 separation exception and the qualified domestic relations order exception do not apply to IRAs. SIMPLE IRA distributions within 2 years of first participating are taxed at 25% instead of 10%, according to the Form 5329 instructions.
| Situation | 10% additional tax | Regular income tax (assumed 22% bracket) | Federal total |
|---|---|---|---|
| Age 45, $20,000 fully taxable 401(k) withdrawal, no exception | $2,000 | $4,400 | $6,400 |
| Age 45, $30,000 withdrawal, no exception | $3,000 | $6,600 | $9,600 |
| Age 56, separated from service this year, $20,000 withdrawal | $0 (exception) | $4,400 | $4,400 |
These are our illustrations. The 22% bracket is an assumption, not a recommendation; your rate depends on your income, and state tax and withholding are separate. The exceptions waive only the 10% additional tax, not the regular income tax.
The IRS says to report the 10% additional tax on Schedule 2 (Form 1040) and attach it to your Form 1040. You must also file Form 5329 if the distribution is subject to the tax and distribution code 1 is not shown in box 7 of Form 1099-R, or if an exception applies but the code box does not identify it or is wrong. If code 1 is correctly shown and no exception applies, you may enter the tax directly on Schedule 2 (line 8) without Form 5329, provided you owe the additional tax on the full amount shown on each Form 1099-R. For the 401(k) contribution rules see our 401(k) limits guide and for state treatment see states that do not tax 401(k) withdrawals.
IRS Topic 558: Additional tax on early distributions from retirement plans other than IRAs, IRS Topic 557: Additional tax on early distributions from traditional and Roth IRAs, IRS: Instructions for Form 5329 (2025).