IRA penalty age

Five Ways to Withdraw Your Retirement Savings Early – Part 2

We educate consumers on the lesser known age based exceptions to the 10% penalty on early distributions from retirement accounts. Includes Age 59 ½, Public Sector Employees, Retirement and 1099 Reporting.

Apr 12, 2016

Use age-based exemptions to withdraw from your retirement savings before age 59 1/2 without a 10% penalty.

With the second installment in our series outlining exceptions to the 10% withdrawal penalty, we will discuss how to avoid the early withdrawal penalty by waiting to withdraw until attaining a certain age.

One important factor in preserving and growing your retirement income is allowing your money to grow, untouched as long as possible, hopefully until retirement age.  The government has a number of provisions in place to discourage withdrawals before age 59 ½.

Generally speaking, any money withdrawn prior to age 59 ½ will be subject to a 10% early distribution penalty. However, there are a few ways to avoid the penalty.

1. Attainment of Age 59 ½ or Older

After attainment of age 59 ½, any cash distributions from a retirement plan are penalty free (401k, IRA, etc.).

2. Severance of Employment on or After Age 55

If you retire, quit or are fired at age 55 or older, cash distributions from employers’ qualified retirement plans are penalty free. Note, this exception does not apply to IRA’s, even if the money in the IRA was rolled over from an employer’s plan.  Distributions from the IRA are still subject to the 10% penalty.

3. Public Safety Employees Age 50 or Older

  • 10% early withdrawal penalties are waived for Qualified Public Safety Employees separating from service after attainment of age 50.
  • This exception applies to any State, County, City or Federal Governmental agency employee who served in law enforcement (including border/customs patrol), firefighting services, emergency medical services, or air traffic controllers.
  • This exception only applies to amounts withdrawn from a Governmental Defined Benefit Plan.

4. 1099 Reporting 

Withdrawing prior to age 59 ½ is considered an early distribution from a qualified retirement plan. Code 1 will be reported in box 7 of the 1099r. If you qualify for one of the above exceptions, you should file Form 5329 with your income tax return to claim the 10% penalty exemption.