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February 13, 2025
Question

For an early distribution from a retirement account do you have to pull the full amount in order NOT to pay the 10% early withdrawal penalty for an emergency use.

  • February 13, 2025
  • 1 reply
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The IRS states: one distribution per calendar year for personal or family emergency expenses, up to the lesser of $1k or vested account balance over $1k. Does it have to be the full amount sitting in the account over $1k or could it be a portion of it?

    1 reply

    CatinaT1
    February 13, 2025

    The exception to the 10% penalty for a distribution related to an Emergency, only applies to $1,000. You would have the 10% early withdrawal penalty on any amount over $1,000.

     

    The IRS says one distribution per calendar year for personal or family emergency expenses, up to the lesser of $1,000 or vested account balance over $1,000. 

     

    The second part of that sentence is confusing, because $1,000 is always going to be the lesser. I looked into it more and included the language below from the IRS Code along with the link.

     

    Emergency personal expense distributions are subject to three limitations. First, section 72(t)(2)(I)(ii) provides that not more than one distribution per calendar year is permitted to be treated as an emergency personal expense distribution by any individual. Second, section 72(t)(2)(I)(iii) permits an individual to treat a distribution as an emergency personal expense distribution in any calendar year in an amount up to a maximum of $1,000. Third, section 72(t)(2)(I)(vii) provides rules that limit taking subsequent emergency personal expense distributions. IRS Link

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    February 14, 2025

    I challenge the response about the your $1,000 limit. As I stated and from the IRS website, is says "up to the lesser of $1,000 OR vested account balance "OVER" $1,000. Which means you would have to take the full amount of the account (if over $1000) for a distribution to qualify, correct? That is my question. 

    DawnC
    Employee
    February 14, 2025

    You can take less than $1K or more than $1K, but only $1K of the distribution will be exempt from the penalty.  

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