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Understanding exceptions to Form 5329, Additional Tax on Early Distributions

SOLVEDby IntuitProSeries Basic12Updated July 14, 2022

The table below explains exceptions to Form 5329, Additional Tax on Early Distributions, to assist you with entering this information in ProSeries.

Refer to the IRS Instructions for Form 5329 for more information.

Exception no.IRS description of exception
01Qualified retirement plan distributions (does not apply to IRAs including SIMPLES) if you separated from service in or after the year you reach age 55 (age 50 for qualified public safety employees).
02Distributions made as part of a series of substantially equal periodic payments (made at least annually) for your life (or life expectancy) or the joint lives (or joint life expectancies) of you and your designated beneficiary (if from an employer plan, payments must begin after separation from service).
03Distributions due to total and permanent disability. You are considered disabled if you can furnish proof that you can’t do any substantial gainful activity because of your physical or mental condition. A medical determination that your condition can be expected to result in death or to be of long, continued, and indefinite duration must be made.
04Distributions due to death (doesn't apply to modified endowment contracts).
05Qualified retirement plan distributions up to the amount you paid for unreimbursed medical expenses during the year minus 7.5% of your adjusted gross income for the year.
06Qualified retirement plan distributions made to an alternate payee under a qualified domestic relations order (doesn’t apply to IRAs).
07IRA distributions made to certain unemployed individuals for health insurance premiums.
08IRA distributions made for qualified higher education expenses.
09IRA distributions made for the purchase of a first home, up to $10,000.
10Qualified retirement plan distributions made due to an IRS levy.
11Qualified distributions to reservists while serving on active duty for at least 180 days.
12Other (see Other next). Also, enter this code if more than one exception applies.

I have a 1099-R with a code 1 for a SIMPLE plan, and the taxpayer qualifies for an exception 1 to avoid the 10% penalty. On Form 5329, under line 1, the Distributions not subject to Additional Tax Smart Worksheet, column B for SIMPLE distributions, line A is grayed out.

In general, if the taxpayer receives an early distribution (including an involuntary cash-out) from an IRA, other qualified retirement plan, or modified endowment contract, the part of the distribution included in income generally is subject to an additional 10% tax.

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