What this line means
The amount of early distributions from line 1 that qualify for an exception to the 10% additional tax. The IRS provides specific exception codes (01 through 15) for situations like disability, medical expenses exceeding 7.5% of AGI, qualified first-time home purchases, and substantially equal periodic payments. Enter the total amount that qualifies and the applicable exception code.
Does this apply to you?
- You took an early distribution due to permanent disability
- You used IRA funds for a first-time home purchase (up to $10,000 lifetime)
- You paid unreimbursed medical expenses exceeding 7.5% of your AGI
- You took substantially equal periodic payments (72(t) distributions) from your IRA
- You separated from service in or after the year you turned 55 (qualified plan distributions only)
Easy to overlook
The age-55 exception applies only to employer plans, not IRAs If you left your job at age 55 or later and took distributions from your former employer’s 401(k), the 10% penalty does not apply. But this exception does not cover IRA distributions. Filers who roll their 401(k) into an IRA and then withdraw from the IRA lose the age-55 exception on those same funds. 1 IRS Publication 590-B — Distributions from IRAs
SECURE 2.0 added new exceptions starting in 2024 The SECURE 2.0 Act added exceptions for domestic abuse victims (up to $10,000), emergency personal expenses (up to $1,000), terminal illness, and federally declared disaster distributions. These newer exceptions have specific requirements and dollar limits. Filers unaware of these additions pay penalties they do not owe. 2 IRS Form 5329 instructions — Exception codes
Watch out for this
Claiming an exception without entering the correct exception code. Line 2 requires both the dollar amount and the two-digit exception number (for example, 01 for a qualified plan after separation from service at age 55+, 03 for disability, 09 for first-time home purchase). Entering the amount without the code causes the IRS to disallow the exception and assess the full 10% penalty.
Footnotes
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IRS Publication 590-B, Distributions from Individual Retirement Arrangements, Early Distributions. https://www.irs.gov/pub/irs-pdf/p590b.pdf ↩
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IRS Form 5329 Instructions, Part I, Exception Codes. https://www.irs.gov/instructions/i5329 ↩