401(k) early withdrawal penalty: the 10% tax and every exception

Key points

• Money taken out of a 401(k), another workplace plan or a traditional IRA before you reach 59 and a half usually owes a 10% additional tax on the taxable part, on top of income tax. From a SIMPLE IRA in your first 2 years in the employer’s plan, it is 25%.
• The IRS lists more than 20 exceptions. Some cover only workplace plans (the rule of 55), some only IRAs (college costs, a first home up to $10,000). An exception removes the 10% only, never the income tax.
• The SECURE 2.0 Act of 2022 added exceptions with their own limits and start dates: terminal illness, disasters (up to $22,000), emergency expenses ($1,000 a year), domestic abuse ($10,500 for 2026) and, from December 30, 2025, long-term care premiums ($2,600 for 2026, workplace plans only).
• You report the tax, or claim an exception, on Form 5329.

Our guide to 401(k) withdrawals covers every way money comes out of a plan. This guide covers the 10% additional tax most people call the 401(k) penalty: what it costs, every exception with its limit and start date, and how to report it. For the ages, including the exact date you reach 59 and a half, see our 401(k) withdrawal age guide.

These are federal rules; state tax is not covered. We checked every rule and figure against the tax code and IRS notices, publications, forms and instructions on October 29, 2026. They are listed at the end.

What is the 401(k) early withdrawal penalty?

Section 72(t) of the tax code raises your tax by “10 percent of the portion of such amount which is includible in gross income” when you take money from a qualified retirement plan early. The IRS calls it the additional tax on early distributions. It covers “qualified plans, 403(a) or (b) annuity plans and traditional IRAs, including IRAs that are connected to a SIMPLE IRA or SEP plan maintained by an employer”: a 401(k), a 403(b), a pension and every traditional, SEP or SIMPLE IRA.

• It falls on the taxable part only. In the IRS’s words it “applies to the part of the distribution that you have to include in gross income. It’s in addition to any regular income tax on that amount.” Roth accounts have their own ordering and 5-year rules: see our Roth IRA withdrawal rules.
• It stops on the date you reach 59 and a half. The first exception covers distributions “made on or after the date on which the employee attains age 59½”.
• Rollovers are not withdrawals. Money moved to another plan or IRA, directly or within 60 days, is not taxed and owes no 10%.
• Governmental 457(b) plans are different. Their payouts owe no 10% “except for distributions attributable to rollovers from another type of plan or IRA.” See our 403(b) and 457(b) withdrawal rules.

How much is the penalty? A worked example

A single filer who has left the employer and is 50 at the end of 2026 takes $20,000 out of that 401(k), with $60,000 of other taxable income. The 2026 standard deduction for a single filer is $16,100.

	No exception	An exception covers all of it
Withdrawal	$20,000	$20,000
Federal income tax it adds	$3,750	$3,750
10% additional tax	$2,000	$0
What you keep	$14,250 (71%)	$16,250 (81%)

Without the withdrawal, taxable income is $43,900 ($60,000 minus $16,100) and the 2026 tax is $5,020. With it, taxable income is $63,900 and the tax is $8,770, because the 22% bracket starts at $50,400. The difference, $3,750, is the income tax the withdrawal adds.

Withholding is a prepayment, not the bill. Paid to you, a 401(k) must hold back 20%, here $4,000, so $16,000 reaches you. With no exception the withdrawal adds $5,750 at filing, so about $1,750 is still owed. With an exception it adds $3,750, so about $250 comes back, if your other withholding covers the tax on your other income. From a traditional IRA the tax and the 10% are the same, but the default withholding is 10%, $2,000: $18,000 reaches you and about $3,750 is left to pay at filing.

Rerun them in our 401(k) withdrawal calculator: no exception, an exception that covers all of it, the same withdrawal from an IRA.

The 25% rate for SIMPLE IRAs in the first 2 years

The tax code substitutes “25 percent” for “10 percent” for SIMPLE IRA money taken “during the 2-year period beginning on the date such individual first participated” in the employer’s SIMPLE IRA plan. After that the rate is 10%. The exceptions below remove the 25% too.

In the example, $20,000 from a SIMPLE IRA in the first 2 years owes $5,000, and you keep $11,250, 56% of it. At filing it adds $8,750, so with 10% withheld about $6,750 is still owed. Run it with the SIMPLE IRA box ticked.

Exceptions to the early withdrawal penalty: the IRS table

The IRS keeps one table, on its “Exceptions to tax on early distributions” page, last reviewed on December 11, 2025. Here it is in full, plus the long-term care row it does not have yet, with each exception’s limit, start date and main condition from the tax code and IRS notices. “Plans” means a 401(k), 403(b) or other qualified employer plan; “IRAs” includes SEP and SIMPLE IRAs; “n/a” is the IRS’s own marking.

Exception	Plans	IRAs	Limit, start date, condition
Age 59 and a half	yes	yes	From the date you reach 59 and a half
Automatic enrollment	yes	SIMPLE IRAs and SARSEPs only	Permissive withdrawals from a plan with automatic enrollment
Birth or adoption	yes	yes	Up to $5,000 per child, within 1 year of the birth or adoption
Corrective distributions	yes	n/a	Excess contributions and deferrals, with their earnings, returned on time
Death	yes	yes	Paid to a beneficiary or the estate
Disability	yes	yes	Total and permanent disability
Disaster recovery	yes	yes	Up to $22,000 per federally declared disaster, if you lived in the area and had an economic loss, taken within 180 days after the later of the disaster’s start and its declaration; disasters from January 26, 2021
Domestic abuse victim	yes	yes	Lesser of $10,000 ($10,500 for 2026) or 50% of the vested account, within 1 year of the abuse; from January 1, 2024
Domestic relations order	yes	n/a	Paid to an alternate payee, such as a former spouse, under a qualified domestic relations order
Education	no	yes	Qualified higher education expenses
Emergency personal expense	yes	yes	One a calendar year, lesser of $1,000 or the vested balance over $1,000; from January 1, 2024
Emergency savings account	yes	n/a	From a pension-linked emergency savings account; from January 1, 2024
Equal payments	yes	yes	A series of substantially equal periodic payments; from a plan, only after you leave the employer
ESOP dividends	yes	n/a	Dividends passed through from an employee stock ownership plan
First home	no	yes	Qualified first-time homebuyers, $10,000 lifetime
IRS levy	yes	yes	Paid because of an IRS levy
Long-term care premiums (not in the IRS table)	yes, if the plan offers it	no	Least of the year’s premiums for certified long-term care insurance, 10% of the vested balance or $2,600 for 2026; defined contribution plans only; from December 30, 2025
Medical expenses	yes	yes	Unreimbursed medical expenses over 7.5% of adjusted gross income
Health insurance while unemployed	no	yes	Premiums, after 12 weeks of unemployment compensation
Military reservists	yes	yes	Reservists called to active duty for more than 179 days or indefinitely
Returned IRA contributions	n/a	yes	Taken out by the tax return due date, including extensions; the earnings that come out with it owe no 10% either (see below)
Rollovers	yes	yes	Moved to another plan or IRA within 60 days, or an in-plan Roth rollover
Separation from service (rule of 55)	yes	no	You leave the employer during or after the year you turn 55; for qualified public safety employees, 50 or 25 years of service under the plan, whichever is earlier
Terminal illness	yes	n/a in the table (see below)	Certified by a physician; from December 30, 2022; no dollar limit

The IRS lists health insurance while unemployed twice, under “Medical” and on its own; it is one exception. The long-term care row comes from the tax code and IRS Notice 2026-33, because the IRS table does not list it yet. Form 5329’s instructions also number a few narrow exceptions the table leaves out, such as phased retirement annuity payments to federal employees (exception 17).

The SECURE 2.0 exceptions: limits and start dates

The SECURE 2.0 Act was enacted on December 29, 2022. What it added or widened:

• Terminal illness, from December 30, 2022. A physician certifies a condition that “can reasonably be expected to result in death in 84 months or less”. IRS Notice 2024-02 says there is, in general, “no limit on the amount” and that it can come from an IRA, although the IRS table marks IRAs n/a.
• Public safety workers, from December 30, 2022. Their version of the rule of 55 starts at “age 50 or 25 years of service under the plan, whichever is earlier”, and now covers private-sector firefighters and corrections officers. See our rule of 55 guide.
• Disaster recovery, for disasters whose incident period began on or after January 26, 2021: up to $22,000 per disaster. It is reported on Form 8915-F, not Form 5329.
• Emergency personal expenses, from January 1, 2024: one distribution a calendar year for “unforeseeable or immediate financial needs relating to necessary personal or family emergency expenses”. The plan may rely on your written certification. With a $1,600 balance the most is $600. Unless you repay it or contribute as much again, that plan treats no other withdrawal as an emergency one for the next 3 calendar years.
• Domestic abuse victims, from January 1, 2024: within 1 year of abuse by a spouse or domestic partner. The dollar cap rises with inflation: $10,000 in the law, $10,300 for 2025, $10,500 for 2026. With a $15,000 vested balance, the 50% limit makes the most $7,500.
• Pension-linked emergency savings accounts, for plan years starting after December 31, 2023.
• Long-term care premiums, from December 30, 2025: from a defined contribution plan that offers it, the least of the year’s premiums for certified long-term care insurance, 10% of your vested balance, or $2,600 for 2026. It counts only if the insurer has filed a premium statement with the plan. IRS Notice 2026-33 says an IRA “is not a plan eligible” for it. Coverage for a spouse needs a joint return.
• Earnings on a returned IRA contribution, for tax determinations made from December 29, 2022: still taxable, but no longer subject to the 10%. The IRS table and Tax Topic 557 still say “not including earnings”; the tax code and the Form 5329 instructions say otherwise.

The IRS calls the emergency, domestic abuse, terminal illness and long-term care distributions optional for a plan. If a plan does not offer one of the first three, another withdrawal it allows that meets the rules can still be claimed as one on Form 5329. Long-term care is different: if the plan does not offer it, the exception does not apply. Emergency, domestic abuse, terminal illness, birth or adoption and disaster withdrawals can be paid back within 3 years; long-term care withdrawals cannot. The 2027 domestic abuse and long-term care limits had not been published on October 29, 2026.

IRA early withdrawal exceptions: what differs from a 401(k)

The IRA early withdrawal penalty is the same 10%, but the list of exceptions is not. Our IRA withdrawal rules guide covers the rest of the IRA rules.

• Only from workplace plans: the rule of 55, court-ordered payments to an alternate payee, ESOP dividends, corrective distributions, emergency savings accounts and long-term care premiums. The tax code says the separation from service and court-order exceptions “shall not apply to distributions from an individual retirement plan.”
• Only from IRAs: higher education, a first home ($10,000 lifetime), health insurance while unemployed and returned contributions.
• Moving money moves the list. Plan money rolled into an IRA follows the IRA list: it loses the rule of 55 and gains the IRA-only exceptions.
• Equal payments start differently. From a plan, they must begin after you leave the employer. Change them before the later of 5 years or 59 and a half and the 10% comes back on the earlier payments, plus interest. Our 72(t) rule guide has the methods.

A hardship withdrawal is not an exception: the IRS says hardship distributions “may also be subject to a 10% additional tax on early distributions”. See our 401(k) hardship withdrawal rules.

An exception removes the 10%, not the income tax

Every exception switches off the additional tax and nothing else. A terminal illness distribution “is includible in gross income, it is not subject to the 10 percent additional tax”, and for long-term care: “Although the 10% additional tax does not apply, a qualified long-term care distribution is generally includible in gross income.” The income tax side is in our guide to taxes on 401(k) withdrawals.

An exception with a dollar limit can cover part of a withdrawal. Say $1,000 of the $20,000 in the example is a qualified emergency personal expense distribution. The 10% falls on $19,000, so it is $1,900. The income tax is still $3,750 on the full $20,000: $5,650 federal in total, and you keep $14,350. The calculator’s exception box is for an exception that covers the whole withdrawal; for a partial one, leave it unticked and take the limit off by hand, as here.

How to report the penalty on Form 5329

Form 5329 works out the tax in four lines (2025 form; check the line numbers for your tax year). Line 1 is the early distributions included in income. Line 2 is the part an exception covers, with its exception number. Line 3 is line 1 minus line 2. Line 4 is 10% of line 3, or 25% for SIMPLE IRA money in its first 2 years, and goes on Schedule 2 (Form 1040), line 8. For the partial example: $20,000, then $1,000 with exception number 23, then $19,000, then $1,900.

You can skip the form if box 7 of every Form 1099-R shows distribution code 1 and you owe the tax on the full amount: the tax then goes straight on Schedule 2. You must file it if an exception applies but box 7 does not show one. From the 2026 Form 1099-R, box 7 is numbered 7a.

The 2025 instructions number the exceptions 01 to 23, and 99 for more than one. Among them: 01 separation from service at 55, 02 equal payments, 03 disability, 04 death, 05 medical expenses, 19 birth or adoption, 20 terminal illness, 22 domestic abuse and 23 emergency expenses. Disaster recovery distributions are not reported on Form 5329, and the 2025 instructions have no number for long-term care distributions: check the instructions for the year you take one.

About this guide

Written by the Diversify Guy editorial desk. Diversify Guy is a pen name. It is the byline of our editorial team, not a single individual. We do not publish personal trading records or claim to be your adviser. We tell you where every figure came from so you can check it yourself. How we work and how we get paid.

This guide explains federal rules. It is not personalized tax or investment advice.

Sources and check dates

All sources were fetched and checked on October 29, 2026.

• IRS, Retirement topics: exceptions to tax on early distributions: https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-exceptions-to-tax-on-early-distributions
• IRS, Topic no. 557 (IRAs): https://www.irs.gov/taxtopics/tc557
• IRS, Topic no. 558 (plans other than IRAs): https://www.irs.gov/taxtopics/tc558
• IRS, Retirement topics: hardship distributions: https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-hardship-distributions
• Internal Revenue Code section 72, U.S. Code 2024 edition: https://www.govinfo.gov/content/pkg/USCODE-2024-title26/html/USCODE-2024-title26-subtitleA-chap1-subchapB-partII-sec72.htm
• Internal Revenue Code section 72, current text with 72(t)(2)(N), Cornell LII: https://www.law.cornell.edu/uscode/text/26/72
• Internal Revenue Code section 401(a)(39), Cornell LII: https://www.law.cornell.edu/uscode/text/26/401
• Internal Revenue Code section 3405 (withholding), U.S. Code 2024 edition: https://www.govinfo.gov/content/pkg/USCODE-2024-title26/html/USCODE-2024-title26-subtitleC-chap24-sec3405.htm
• IRS, Form 5329 (2025): https://www.irs.gov/pub/irs-pdf/f5329.pdf
• IRS, Instructions for Form 5329 (2025): https://www.irs.gov/pub/irs-pdf/i5329.pdf
• IRS, Instructions for Forms 1099-R and 5498 (2026): https://www.irs.gov/pub/irs-pdf/i1099r.pdf
• IRS Notice 2024-2: https://www.irs.gov/pub/irs-drop/n-24-02.pdf
• IRS Notice 2024-55: https://www.irs.gov/pub/irs-drop/n-24-55.pdf
• IRS Notice 2025-67 (2026 limits): https://www.irs.gov/pub/irs-drop/n-25-67.pdf
• IRS Notice 2026-33 (long-term care distributions): https://www.irs.gov/pub/irs-drop/n-26-33.pdf
• IRS Rev. Proc. 2025-32 (2026 brackets and standard deduction): https://www.irs.gov/pub/irs-drop/rp-25-32.pdf
• IRS, IR-2025-103 (2026 inflation adjustments): https://www.irs.gov/newsroom/irs-releases-tax-inflation-adjustments-for-tax-year-2026-including-amendments-from-the-one-big-beautiful-bill
• IRS Publication 575 (2025): https://www.irs.gov/publications/p575
• IRS, COLA increases for dollar limitations on benefits and contributions (checked for 2027 limits): https://www.irs.gov/retirement-plans/cola-increases-for-dollar-limitations-on-benefits-and-contributions
• Diversify Guy 401(k) withdrawal calculator, run on October 29, 2026 with the inputs in each link above.