Do I need to pay the extra 10% tax on my husband's ESOP distribution?

Forum|Forum|1 year ago
February 5, 2025
1 reply
0 views

When doing my Federal return, it looked like an ESOP distribution was an exception to the additional 10% tax. Is this right?

ThomasM125

If the distribution was early, before age 59 1/2, it would normally be subject to a 10% penalty. There are exceptions to that, in the instance of death or disability for instance. Also in the case of dividends paid from the ESOP. A lot would depend on the code listed in box 7 on your Form 1099-R, can you provide that to us?

**Say "Thanks" by clicking the thumb icon in a post**Mark the post that answers your question by clicking on "Mark as Best Answer"

kobnrayAuthor

The code in box 7 is 1. The TurboTax program said an ESOP distribution was an exception, but I don't want to underpay my taxes, either.

mglauner

A Code 1 in Box 7 of a Form 1099-R indicates an Early Distribution, with no known exception, which would generate a 10% Penalty.

Depending on what type of Retirement Account the distribution was from, here's more info on IRA Early Withdrawal Penalty Exceptions and Penalty Exception for Non-IRA's.

After entering your 1099-R, TurboTax will ask about any Penalty Exceptions you may qualify for.

Keep this 1099-R handy for when you sell the ESOP shares. The amount reported in Box 2a will be the Cost Basis when reporting the sale later, with a Form 1099-B.

Here's more info on ESOP Distributions on Form 1099-R.

@kobnray