Five Ways to Withdraw Your Retirement Savings Early – Part 3

Educate on age-based exceptions to 10% penalty on early distributions from accounts. Permissible withdrawals and Eligible Automatic Contribution Arrangements. 

Apr 26, 2016

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

Early WithdrawalContinuing in our series on exceptions to the 10% early withdrawal penalty, we identify permissible withdrawals as another exception.

The Pension Protection Act of 2006 (PPA), led to the creation of Eligible Automatic Contribution Arrangements (EACAs) for Qualified Retirement Plans. In these plans, deferral contributions are automatically withheld from employee pay and contributed to the plan on their behalf. Participants can elect not to participant.

Permissible Withdrawals

An EACA may provide a special distribution option that allows participants to take a distribution of “accidental” automatic contributions (if they failed to opt out


To qualify as a permissible withdrawal, amounts must:

  • Have been contributed on or after 1/1/08.
  • Be attributable to only those amounts contributed within 90 days following the date of the first automatic contribution.
  • Be included in the participant’s gross income for the year of distribution.
  • Include earnings.

Tax Reporting

Amounts withdrawn as permissible withdrawals should be reported by the plan on IRS Form 1099R using code 2, indicating that there exists a known exception to any early withdrawal penalties.