Exceptions to the 10% additional Tax on Retirement Plan Withdrawals before age 59 ½

• Distributions that are part of a series of substantially equal periodic payments (at least once per year) made for the life (or life expectancy) of an employee or the joint lives (or joint life expectancies) of an employee and his/her designated beneficiary.
• Distributions made to an employee after separation from service after age 55. However, this rule does not apply to distributions from Individual Retirement Accounts (IRAs).
• Distributions that are dividends paid on stock of a corporation (Employee Stock Ownership Plans - ESOPs). However, this exception does not apply to dividends that are reinvested in qualifying employer securities in accordance with a participant's election.
• Distributions made to a beneficiary (or to the estate of the employee) on or after the death of the employee.
• Distributions attributable to an employee being disabled.
• Withdrawals from a Qualified Plan or IRA made because of a levy on the Plan or IRA.
• Distributions made to an alternate payee such as a former spouse, under a Qualified Domestic Relations Order (QDRO). This exception to the early withdrawal tax does not apply to distributions from IRAs.
• Distributions from an IRA to certain unemployed individuals for health insurance premiums.
• Distributions (other than those described above), made to an employee for medical expenses, to the extent that they do not exceed the amount allowed as a medical expense deduction (7.5% of adjusted gross income, for amounts paid during the taxable year for medical care).
• Withdrawal of IRA funds by "first-time homebuyers", who are subject to a $10,000 lifetime limitation.
• Withdrawal of IRA funds to pay higher education expenses.
• Transfers of assets of a terminated defined benefit plan (participants' interests in which have been fully vested) to a 401 K Plan maintained by the same employer.
• Tax-free rollovers from a Qualified Plan or IRA to another Qualified Plan or IRA, since none of these are included in income.

Qualified Retirement Plan: Any type of Defined Benefit or Defined Contribution Plan such as a Pension Plan, 401 K Plan, Individual Retirement Account, Employee Stock Ownership Plan, Thrift Savings Plan or 403 B Plan, among others.

Questions? Please contact Richard A. Fragale, CPA, MT, Tax Partner of Heffler, Radetich & Saitta LLP. 215.972.5052. rfragale@heffler.com

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