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includable in the distributee’s gross income in the year of
distribution under the provisions of section 72. Secs.
61(a)(11), 402(a); see secs. 401(a), 4974(c)(1). Such
distributions made prior to a taxpayer’s attaining the age of 59�
that are includable in income are generally subject to a 10-
percent early withdrawal tax unless an exception to the tax
applies. Sec. 72(t)(1).
The section 72(t) additional tax is intended to discourage
premature distributions from retirement plans. Dwyer v.
Commissioner, 106 T.C. 337, 340 (1996); see also S. Rept. 93-383,
at 134 (1973), 1974-3 C.B. (Supp.) 80, 213. Being debt free is a
laudable financial goal. Regrettably, no exception applies for
that purpose; the money petitioner used to pay off his personal
debts remains subject to the 10-percent additional tax. While
petitioner’s hard work enabled him to retire a bit early, the tax
code is sometimes unforgiving in its attempts at standardization.
Section 72(t)(2)(F) does exempt distributions from the early
withdrawal tax to the extent such distributions are qualified
first-time homebuyer distributions. However, the maximum amount
of a distribution that may be treated as a qualified first-time
homebuyer distribution is $10,000. See sec. 72(t)(8)(B).
Therefore, only $10,000 of the approximately $30,000 petitioner
used to acquire his first home would be eligible for relief from
the additional 10-percent tax under the exception, if applicable,
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Last modified: May 25, 2011