What Is the Tax on an Early IRA Withdrawal?
The Internal Revenue Service has specific rules on when you can withdraw money from your retirement accounts. Early withdrawals carry a penalty in addition to your tax liability.
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Tax Rate
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When withdrawing money from an IRA (individual retirement account), you must declare it as income. In doing so, you will be taxed at the appropriate rate. Depending on your income, that rate ranges from 10 to 35 percent.
Penalty
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In addition to paying the normal income tax rate on your IRA withdrawal, the IRS levies an additional penalty. That amount is 10 percent on the amount of the distribution.
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Age 59 1/2
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Any withdrawals taken before you reach age 59 ½ are considered early withdrawals and are subject to the penalty. Withdrawals taken after you reach this age are not penalized but will still be subject to your normal federal income tax rate.
Exceptions
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The IRS allows for exceptions to the age 59 ½ rule. If you make a withdrawal to pay for qualified tuition for yourself, spouse or a dependent, your withdrawal is exempt from the 10 percent penalty. First-time home buyers can withdraw up to $10,000 of their IRA money without penalty.
Roth IRAs
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Different rules apply for Roth IRAs since those contributions have already been taxed. Withdrawals of your contributions can be taken any time from a Roth IRA without tax or penalty. Nonqualified distributions may be subject to penalty and tax, much as with a traditional IRA.
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