IRC Section 72(t): Early Distribution Penalty and Exceptions

More than twenty situations let you avoid the 10% early withdrawal penalty exceptions written into IRC Section 72(t), covering everything from disability and large medical bills to newer carve-outs for emergencies, domestic abuse, and terminal illness.¹ The 10% additional tax normally applies to the taxable portion of any distribution taken before age 59½ from a traditional 401(k), 403(b), traditional IRA, SEP-IRA, or SIMPLE IRA. Regular income tax still applies to whatever you withdraw; the exceptions only remove the extra 10%.

One account type sits mostly outside this rule. Distributions from a governmental 457(b) plan are generally not subject to the 10% additional tax, unless the money originally came from a rollover out of a different plan or an IRA.²

Exceptions That Work for Both IRAs and Employer Plans

These are the exceptions Congress considered serious enough to override the general rule regardless of account type.²

Death of the account owner. Distributions to a beneficiary or the estate are penalty-free at any age.
Total and permanent disability, meaning a physical or mental condition that prevents any substantial work and is expected to last indefinitely or result in death.
Unreimbursed medical expenses that exceed 7.5% of your adjusted gross income for the year. Only the amount above that threshold escapes the penalty.
An IRS levy against the retirement account to collect a tax debt.
Qualified birth or adoption distributions of up to $5,000 per child, taken within one year of the birth or finalized adoption. You can repay the amount within three years.
Terminal illness, added by SECURE 2.0, when a physician certifies that a condition is expected to result in death within 84 months. Repayment is allowed within three years.¹
Qualified disaster recovery distributions of up to $22,000 per disaster if your principal residence is in a federally declared disaster area and you suffered an economic loss. The income can be spread over three tax years, with three years to repay.³
Substantially equal periodic payments, a structured withdrawal schedule discussed in its own section below.

Exceptions Only Available to Employer Plans

A handful of exceptions apply only to 401(k), 403(b), and similar employer-sponsored plans. Rolling that money into an IRA first destroys them, which matters when you’re deciding whether to leave a former employer’s plan alone or consolidate.

Separation from service at age 55 or older, often called the Rule of 55. If you leave your job during or after the calendar year you turn 55, distributions from that employer’s plan avoid the penalty. The exception covers only the plan sponsored by the employer you separated from.²
Qualified public safety employees at age 50. Firefighters, law enforcement officers, corrections officers, customs and border protection officers, air traffic controllers, and similar state or local public safety employees get the separation exception five years earlier.⁴
Distributions to an alternate payee under a qualified domestic relations order. Court-ordered payments to a former spouse during divorce avoid the penalty. This exception does not extend to IRAs.

Exceptions Only Available to IRAs

IRAs carry their own set of penalty exceptions that employer plans do not offer.²

Higher education expenses for you, your spouse, your children, or your grandchildren. Qualifying costs include tuition, fees, books, and required supplies at an eligible postsecondary institution.
First-time homebuyer purchases, capped at $10,000 over your lifetime, used to buy, build, or rebuild a primary residence. “First-time” means you haven’t owned a principal residence in the previous two years. The funds must be used within 120 days of withdrawal. The cap has not been adjusted since it was enacted and remains $10,000 as of 2026.
Health insurance premiums during unemployment. If you received unemployment compensation for at least 12 consecutive weeks, IRA distributions used to pay premiums for you and your family are penalty-free.
Qualified reservist distributions. Members of the military reserves called to active duty for at least 180 days can take penalty-free IRA distributions during the active duty period.⁵

SECURE 2.0 Added Several New Exceptions

The SECURE 2.0 Act, signed in December 2022, layered in new penalty exceptions that phased in from 2024 through 2026.

Emergency Personal Expense Distributions

Starting in 2024, you can withdraw up to $1,000 per year for unforeseeable personal or family emergency expenses without paying the 10% penalty. The $1,000 cap is not indexed for inflation. If your vested balance is $2,000 or less, the maximum drops to the amount above $1,000, so someone with a $1,500 balance could only take $500 under this exception.⁶ You can repay the distribution within three years. If you don’t repay, you’re limited to one emergency distribution every three calendar years from the same plan, unless your regular plan contributions during that period equal or exceed the amount you withdrew.

Domestic Abuse Victim Distributions

Also starting in 2024, a victim of domestic abuse can withdraw the lesser of $10,000 (indexed for inflation) or 50% of the vested account balance without the 10% penalty. The distribution must be taken within one year of the abuse, and the participant self-certifies eligibility on the plan’s distribution request form. Repayment within three years is allowed.⁶

Long-Term Care Insurance Premiums

Effective December 29, 2025, participants can take penalty-free distributions of up to $2,500 per year (indexed for inflation) to pay premiums on qualified long-term care insurance. Regular income tax still applies. This exception is new for 2026, and many plan administrators are still updating their systems.

Roth IRAs Follow Different Ordering Rules

Roth IRAs work differently because contributions go in after tax. Withdrawals come out in a specific order: direct contributions first, then converted amounts, then earnings.⁷ Your direct contributions can be pulled out at any age, for any reason, with no penalty and no tax. The 10% penalty only becomes relevant once you move past contributions into converted amounts or earnings.

Each conversion starts its own five-year waiting period. Withdrawing the taxable portion of a conversion before that period ends and before age 59½ triggers the 10% penalty unless another exception applies. Earnings face the strictest treatment: withdrawing them before age 59½ and before the five-year aging period measured from your first Roth IRA contribution triggers both income tax and the 10% penalty, unless an exception covers you.

Substantially Equal Periodic Payments for Any Age, Any Reason

The SEPP exception is the only route that lets you tap retirement funds before 59½ without meeting a specific hardship test. You set up a series of annual withdrawals calculated over your life expectancy (or the joint life expectancy of you and a beneficiary) using one of three IRS-approved methods: the required minimum distribution method, the fixed amortization method, or the fixed annuitization method. For the fixed methods, the interest rate you choose cannot exceed the greater of 5% or 120% of the federal mid-term rate published for either of the two months before your first payment.⁸

Once started, the schedule must continue for five years or until you reach age 59½, whichever comes later. Modifying the payments before that point triggers a retroactive recapture: the IRS imposes the 10% penalty on every distribution taken since the schedule started, plus interest for the deferral period. Taking an extra distribution from the account, rolling additional money in, or closing a separate IRA that changes your total balance can all count as a modification. Isolate the SEPP account and treat it as untouchable beyond the scheduled payments.

How to Claim an Exception on Your Tax Return

Your financial institution will send Form 1099-R for any distribution of $10 or more. Box 7 carries a distribution code: Code 1 means “early distribution, no known exception,” Code 3 means disability, Code 4 means death. The institution uses the code that fits the information it has, which is often just your age.⁹

If your 1099-R shows Code 1 but you qualify for an exception, you claim it on Form 5329. Line 2 is where you enter the exempt amount along with the exception number (01 through 23, or 99 if more than one applies). The result flows to Schedule 2 of your Form 1040, line 8. If the code is already correct and you owe the full 10% penalty, you can report the additional tax directly on Schedule 2 without filing Form 5329.⁴ For disaster recovery distributions, use Form 8915-F instead of or in addition to Form 5329; it handles the three-year income spreading and tracks repayments.³p>

Keep documentation matched to the exception you claim: medical invoices, a bursar statement, a home closing statement, a physician’s certification, or the self-certification form for domestic abuse. The dollar amounts and dates should line up with the distribution and the tax year. Hold onto your 1099-R, Form 5329, and supporting records for at least three years after the filing date of the return that reported the distribution.¹⁰

1
Office of the Law Revision Counsel. 26 USC 72 – Annuities; Certain Proceeds of Endowment and Life Insurance Contracts
2
Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions
3
Internal Revenue Service. Instructions for Form 8915-F (12/2025)
4
Internal Revenue Service. Instructions for Form 5329 (2025)
5
Internal Revenue Service. Topic No. 558, Additional Tax on Early Distributions From Retirement Plans Other Than IRAs
6
Internal Revenue Service. Notice 2024-55: Certain Exceptions to the 10 Percent Additional Tax Under Code Section 72(t)
7
Internal Revenue Service. 2025 Publication 590-B
8
Internal Revenue Service. Substantially Equal Periodic Payments
9
Internal Revenue Service. Instructions for Forms 1099-R and 5498
10
Internal Revenue Service. How Long Should I Keep Records