Taxing Lessons Case Summaries

Case — Qualified Retirement Plan Early Withdrawal Tax

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TL Case Summ


Do retirement plan distributions made to an employee who is age 55 qualify for an exception to the 10% early withdrawal tax?


Taxpayer Says: Retirement plan distributions made after age 55 are not subject to the additional 10% tax.

Internal Revenue Service Says: The exception only applies when the taxpayer is over age 55 at the time of separation from service.


From Internal Revenue Code Section 72(t)(1): Provides for an additional tax of 10 percent on withdrawals from qualified retirement plans.

From Internal Revenue Code Section 72(t)(2)(A)(v): Provides an exception to the additional 10 percent tax for distributions made to an employee after separation from service after attainment of age 55.


As a general rule, you have to pay ordinary income tax on retirement plan distributions, no matter what age you are when you take the distributions. In addition, when you make withdrawals prior to normal retirement age, those amounts are generally subject to an extra 10% tax. However, the tax code provides numerous specific exceptions to the additional tax.

In this case, the taxpayer retired at age 53 and took an early distribution from his retirement plan when he turned 55. The taxpayer believes that because he was age 55 when he took the distribution, the 10% tax does not apply.

The IRS says the age 55 exception only applies if the taxpayer is age 55 when he leaves his job.


Make your selection, then see “The Court’s Decision” below for a full explanation

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HL Carpenter, an experienced investor and a CPA, specializes in reader friendly articles on taxes and investing for individuals and small businesses, and publishes two newsletters: Taxing Lessons and Top Drawer Ink. Visit and

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For the IRS. In all cases, the exception applies only if the participant has attained age 55 on or before separation from service. (See House Conference Report 99-841 (Vol. II), at II-456 to II-457 (1986), 1986-3 C.B. (Vol. 4) 1, 456-457.)