Tax Code 72(t): Exceptions to the 10% Early Withdrawal Penalty

Section 72(t) of the Internal Revenue Code adds a 10% tax to most retirement account withdrawals taken before age 59½, but the statute also lists more than a dozen exceptions to the 10% penalty under tax code 72(t) that let you access the money early without it. The exceptions fall into three groups: those that work for any retirement account, those limited to IRAs, and newer provisions added by the SECURE 2.0 Act of 2022. A separate mechanism, substantially equal periodic payments, lets you build your own exception on a schedule.¹

The penalty sits on top of regular income tax and applies to 401(k)s, 403(b)s, traditional IRAs, SEP and SIMPLE IRAs, and most other tax-deferred plans. It only touches the taxable portion of a distribution, so after-tax contributions come out penalty-free.²

Exceptions That Work for Any Retirement Account

Section 72(t)(2) lists situations where the penalty simply does not apply, whether the money sits in an IRA or an employer plan:³

Reaching age 59½. Once you cross that line, the penalty is gone.
Death. Distributions to your beneficiary or estate after your death are exempt.
Total and permanent disability. A physician must certify that you cannot perform any substantial gainful activity because of a condition expected to result in death or last indefinitely.
Unreimbursed medical expenses above 7.5% of adjusted gross income. Only the amount over that threshold qualifies.
IRS levy on the account.
Qualified reservist distributions for military reservists called to active duty for at least 180 days.
Birth or adoption expenses, up to $5,000 per child, repayable within three years.
Substantially equal periodic payments, covered in detail below.

Leaving Your Job at 55 or Later

If you separate from service during or after the year you turn 55, you can draw from that employer’s plan without the penalty.³ The exception is tied to the plan you left, not to you personally. Roll the balance into an IRA and the exception disappears.

Public safety workers get earlier access. Police, firefighters, EMS, air traffic controllers, and similar federal and state employees qualify at age 50, or after 25 years of service, whichever comes first.⁴

Exceptions Limited to IRAs

Three exceptions apply only to individual retirement accounts. Trying to use them for a 401(k) or 403(b) distribution will not work, and confusing the two categories is one of the costlier mistakes with early withdrawals.

First-Time Home Purchase

You can pull up to $10,000 from an IRA over your lifetime to buy, build, or rebuild a first home for yourself, a spouse, a child, grandchild, or parent.⁵ The statute limits this to distributions from “an individual retirement plan,” so employer plans are excluded. The money has to be used within 120 days. If the deal falls through, returning the funds to an IRA within that same window undoes both the tax and the penalty.

Higher Education Costs

IRA money used for qualified higher education expenses avoids the penalty. Tuition, fees, books, supplies, and required equipment count at any accredited institution that takes federal student aid. Room and board count when the student attends at least half-time. Expenses can be for you, your spouse, your children, or grandchildren. Amounts already covered by tax-free scholarships or employer education assistance do not.

Health Insurance While Unemployed

If you have collected unemployment compensation for at least 12 consecutive weeks, IRA withdrawals to pay health insurance premiums for you and your family are penalty-free.³

Newer Exceptions Under SECURE 2.0

The SECURE 2.0 Act added five exceptions that have rolled out over the past few years.

Terminal Illness

A physician’s certification that you have an illness or condition reasonably expected to result in death within 84 months opens the door to penalty-free distributions with no dollar cap. The certification must come from a doctor of medicine or osteopathy, include a narrative describing the supporting evidence, and be signed and dated.⁶ You can repay the distribution within three years if your condition improves.

Emergency Personal Expenses

Starting in 2024, you can take up to $1,000 per year for an unforeseeable or immediate financial need without the penalty. Only one such distribution per calendar year is allowed. The $1,000 cap is not indexed to inflation. A second emergency distribution is off the table until you fully repay the first or three years pass.⁶

Domestic Abuse Survivors

Someone who has experienced domestic abuse can withdraw the lesser of $10,000 (indexed for inflation) or 50% of the vested account balance without the penalty, with a three-year window to repay.⁶

Federally Declared Disasters

Residents of a federally declared disaster area can withdraw up to $22,000 across all their retirement accounts penalty-free, provided the distribution happens within 180 days of the declaration. Repayment within three years is treated as a tax-free rollover.⁷

Long-Term Care Insurance Premiums

Beginning with the 2026 tax year, you can withdraw up to $2,600 annually to pay qualified long-term care insurance premiums without the penalty. The base cap of $2,500 is indexed for inflation, which produced the $2,600 figure for 2026.⁸

Substantially Equal Periodic Payments

SEPP, sometimes called a “72(t) distribution,” lets you build your own exception. You commit to a series of scheduled withdrawals calculated from your life expectancy, and the penalty comes off every payment in the series.⁹

The schedule has to last for the longer of five years or until you turn 59½. Start at 52 and you continue until 59½. Start at 57 and you continue until 62, because five years past 57 comes after 59½.

Break the schedule early and the IRS retroactively applies the 10% penalty to every distribution you took since the series began, with interest running from each original due date.⁹ Modifications that trigger recapture include changing the payment, skipping one, adding money to the account, or taking an extra distribution. Death, disability, and a qualifying public safety officer distribution are the only free passes.

The Three Calculation Methods

The IRS recognizes three ways to compute the annual payment:¹

The required minimum distribution method divides your balance by a life expectancy factor each year. The payment moves with the balance and typically comes out smallest.
The fixed amortization method amortizes the balance over your life expectancy at a chosen interest rate, producing a level annual payment.
The fixed annuitization method divides the balance by an annuity factor built from IRS mortality tables and a fixed interest rate, also producing a level payment.

For the two fixed methods, the interest rate cannot exceed the greater of 5% or 120% of the federal midterm rate for either of the two months before your first payment. Notice 2022-6 set the 5% floor, so that rate is always available even when market rates are lower. A higher rate produces a bigger annual payment.

The One Permitted Switch

You can move once from the fixed amortization or fixed annuitization method to the RMD method without triggering recapture.¹⁰ The switch is permanent. You cannot switch back, and any further change counts as a modification. This exists because a bad market can drain an account faster than a fixed schedule anticipated; the RMD method’s annual recalculation shrinks the payment when the balance drops, which preserves what remains.

Accounts and Withdrawals the Penalty Doesn’t Reach

Two situations look like they might involve 72(t) but usually don’t. Governmental 457(b) plans are generally outside the 10% penalty entirely: leave your employer, take a distribution, and you owe income tax but no penalty, regardless of age.¹¹ The penalty does apply to money that rolled into the 457(b) from a 401(k) or IRA.

Roth IRA contributions can come out at any time, at any age, tax-free and penalty-free, because you already paid tax on them going in. The penalty only enters the picture when you tap earnings before 59½ and before the account has been open five years. If your Roth balance sits at or near your total lifetime contributions, 72(t) probably has nothing to say about your withdrawal.

Claiming an Exception on Your Tax Return

If you owe the full penalty and your Form 1099-R shows the correct distribution code, you can report the tax on Schedule 2 (Form 1040), line 8, and skip Form 5329.¹² To claim an exception, you file Form 5329 and enter an exception number on line 2 of Part I. Common codes include 01 for separation from service after 55, 02 for SEPP, 03 for disability, 04 for death, 05 for medical expenses, and 09 for a first-time home purchase from an IRA. The full list sits in the form instructions.⁴

For a SEPP series, keep records of the initial account balance, the valuation date, the interest rate, the life expectancy table used, and the annual calculation. An examiner who finds an error can treat the entire series as modified, which brings the recapture tax and interest running from the first distribution.¹ No general waiver exists for the 10% penalty, so the math has to be right the first time.

1
Internal Revenue Service. Substantially Equal Periodic Payments
2
Internal Revenue Service. Topic No. 558, Additional Tax on Early Distributions From Retirement Plans Other Than IRAs
3
Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions
4
Internal Revenue Service. Instructions for Form 5329
5
Office of the Law Revision Counsel. 26 USC 72 – Annuities; Certain Proceeds of Endowment and Life Insurance Contracts
6
Internal Revenue Service. Notice 2024-55 Certain Exceptions to the 10 Percent Additional Tax Under Code Section 72(t)
7
Internal Revenue Service. Retirement Plans and IRAs Under the SECURE 2.0 Act of 2022
8
Internal Revenue Service. Guidance on Qualified Long-Term Care Distributions
9
Internal Revenue Service. Notice 2022-6 Determination of Substantially Equal Periodic Payments
10
Internal Revenue Service. Revenue Ruling 2002-62
11
Internal Revenue Service. Comparison of Tax-Exempt 457(b) Plans and Governmental 457(b) Plans
12
Internal Revenue Service. Form 5329 – Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts