How to report early 401k withdrawal on Form 5329 - hurricane impact?

I'm wrapping up my taxes on TaxAct and hitting a roadblock with reporting my early 401k withdrawal. Not sure if I can avoid the 10% penalty because of the hurricane damage we had, and if so, how to properly document it on Form 5329. I'm prepared to pay the penalty if I have to, but obviously would prefer not to if there's a legitimate exception. Look, I know taking from your 401k early isn't ideal, but sometimes you just don't have options. We pulled out about $13,500 and had them withhold like 30% for taxes and potential penalties. Now I'm at the part in TaxAct where it's asking for "Early Distribution amount included in income" - the system defaulted to $0, which doesn't seem right. I'm stuck on how to properly complete this section so I don't mess anything up. Any help with the Form 5329 and possible hurricane exception would be really appreciated!

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20 comments

Omar Hassan

•8M

You might qualify for penalty relief under the disaster exception. If your withdrawal was related to a federally declared disaster area (which many hurricane zones are), you could potentially avoid the 10% early withdrawal penalty. When filling out Form 5329, you'll want to enter the full distribution amount ($13,500) in the "Early distributions included in income" line. Then in the "Distributions excepted from the additional tax" line, you'd enter the same amount if you qualify for the exception. For the exception code, you'd use code "2" which is for qualified disaster distributions. TaxAct might have defaulted to $0 because it doesn't automatically know you had an early distribution. Make sure you've properly entered the 1099-R you received showing the distribution, with the correct distribution code.

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Omar Hassan

•8M

For job loss alone, unfortunately there isn't a specific exception to the 10% early withdrawal penalty. The main exceptions are for qualified higher education expenses, first-time home purchase (up to $10,000), certain medical expenses exceeding 7.5% of your AGI, disability, or distributions made as part of substantially equal periodic payments. If your job loss was directly related to a federally declared disaster, that would potentially qualify. If not, you may still want to check if any other exceptions apply to your situation based on how you used the funds.

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Diego Vargas

•8M

After struggling with the same Form 5329 issues last year after taking an early withdrawal, I found https://taxr.ai incredibly helpful for my situation. I uploaded my 1099-R and previous tax returns, and their system actually identified that I qualified for an exception I hadn't even considered (medical expenses over 7.5% of AGI). The way it works is their AI reviews your documents to find potential exceptions or deductions you might miss. For disaster-related withdrawals like yours, it can help identify if your area was officially designated as a federal disaster zone and help you properly document the exception. Saved me a ton of stress trying to figure out all the form codes and exception rules.

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Diego Vargas

•8M

It's been extremely accurate in my experience. The system doesn't just make suggestions - it actually shows you exactly where on Form 5329 to enter information and which exception codes to use. I was nervous too, but their analysis comes with explanations citing the specific tax code provisions that apply to your situation. For disaster zone documentation, it tells you exactly what you need and how to verify if your area qualifies. It doesn't just make assumptions - it guides you through checking the FEMA disaster declarations and shows you how to document everything properly for your records in case of an audit.

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Anastasia Fedorov

•8M

Just wanted to update after trying taxr.ai for my situation. It was super helpful! I uploaded my 1099-R and some documents showing the flooding in my area, and it confirmed my county was actually in a federally declared disaster zone that I didn't even know about. The service walked me through exactly how to complete Form 5329, showing me which exception code to use and where to document everything. It even provided me with the exact FEMA disaster declaration number to reference. I was able to properly claim the exception and avoid about $2,700 in early withdrawal penalties. Definitely worth checking out if you're dealing with this same issue!

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Sean Doyle

•8M

If you're having trouble getting answers from the IRS about your specific situation, I'd recommend https://claimyr.com to get through to an actual IRS agent. I spent weeks trying to reach someone at the IRS about my own early withdrawal situation last year (mine was for medical expenses), and kept hitting automated systems or disconnects. Claimyr got me through to a real person in about 20 minutes when I'd been trying for days on my own. They have a good demo video of how it works here: https://youtu.be/_kiP6q8DX5c. The agent I spoke with confirmed exactly how to fill out Form 5329 for my situation and what documentation I needed to keep. Saved me from potentially making a costly mistake.

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Sean Doyle

•8M

They use a combination of smart dialing technology and knowing exactly which prompts to use in the IRS phone system. It's not just auto-dialing - they navigate through the complicated IRS phone tree and only transfer you once they have an actual agent on the line. They've built their system specifically to work with the IRS phone system quirks. I was skeptical too, but when you've been trying to get answers for weeks and keep getting nowhere, it's worth a shot. The IRS agent I spoke with was super helpful once I finally got through and gave me the exact guidance I needed for my Form 5329 situation.

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Luca Romano

•8M

Ok I have to eat my words. I tried Claimyr this morning after posting that skeptical comment yesterday. I was connected to an actual IRS agent in about 25 minutes, which is honestly mind-blowing considering I've been trying for weeks. The agent confirmed that my hurricane-related withdrawal DOES qualify for the exception since my county was in the disaster declaration. She walked me through exactly how to fill out Form 5329 with the right code (code 2) and told me what documentation to keep. She also mentioned that I need to make sure I have the distribution properly coded on my 1099-R or the system might reject it. Seriously can't believe I actually got through to someone who could help!

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Nia Jackson

•8M

If your 1099-R shows code 2 in Box 7, that typically means "early distribution, exception applies." This is a good start, but you'll still need to complete Form 5329 to specify which exception you're claiming. The code 2 on the 1099-R just indicates that an exception might apply, but Form 5329 is where you document which specific exception you're using. In your case, you'd need to enter the distribution amount on Form 5329, then enter the same amount in the exception line, and use the appropriate exception code (code 2 for disaster relief, different from the code 2 on the 1099-R). This tells the IRS exactly why you believe you qualify for the exception.

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Tyler Lefleur

•5M

The 3-year income spreading option is still available for qualified disaster distributions, not just COVID-related ones! This applies to distributions from retirement plans due to federally declared disasters. You can elect to include the distribution in income ratably over the 3-year period beginning with the year of distribution. To do this, you'll need to file Form 8915-F (Qualified Disaster Retirement Plan Distributions and Repayments) along with your return. This form lets you specify how much of the distribution to include in each year's income. Since you withdrew $13,500, you could potentially include $4,500 in income each year for three years instead of taking the full tax hit this year. Just make sure your hurricane situation qualifies as a federally declared disaster in your area before electing this option. The IRS has specific requirements about timing and geographic areas that qualify.

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