Tax on Early Distributions

Most distributions (both periodic and nonperiodic) from qualified retirement plans and nonqualified annuity contracts made to you before you reach age 59 ¹ /2 are subject to an additional tax of 10%. This tax applies to the part of the distribution that you must include in gross income. It doesn’t apply to any part of a distribution that is tax free, such as amounts that represent a return of your cost or that were rolled over to another retirement plan. It also doesn’t apply to corrective distributions of excess defer- rals, excess contributions, or excess aggregate contribu- tions (discussed earlier under Taxation of Nonperiodic Payments ).

For this purpose, a qualified retirement plan includes:

• A qualified employee plan (including a qualified cash or deferred arrangement (CODA) under Internal Revenue Code section 401(k)),

• A qualified employee annuity plan, or

• A tax-sheltered annuity plan (403(b) plan).

To the extent that a distribution is attributable to