How to Calculate an Early Roth Withdrawal
Traditionally any withdrawal from a Roth IRA is considered early if it was made before the IRA was aged under 59 and a half. There are certain situations in which there are no penalties for an early withdrawal. However if the special circumstances are not met then the holder will need to pay both federal and state early withdrawal fees. The amount of the fees you are required to pay will depend on your yearly income and the federal and state tax rates you pay.
Other People Are Reading
Instructions
-
-
1
Determine if the reasons you are making an early withdrawal meet any of the eight exceptions to having to pay an additional tax. If the money is for unreimbursed medical expenses, medical insurance, disability, to the IRA beneficiary if the IRA holder dies, higher education expenses, buying your first home or rollover from another qualified IRA then the additional tax does not apply. However you will have to fill out paperwork that proves that you qualify for the exemption.
-
2
Check what your federal tax rate is that you pay each year. This tax rate depends on your yearly income. The tax rate can range from 15 to 35 percent depending on income. Multiply the amount of the IRA early withdrawal and multiply this by the tax rate. So if you took out $10,000 from the IRA and have tax rate of 20 percent you will pay a fee of $2,000 to the federal government.
-
-
3
Determine your state tax rate. The state income tax rate is typically less than the federal rate. You can check the rate from your previous year's tax return if your income bracket will be similar. So for a $10,000 early distribution and a state tax rate of 6 percent, you would owe the state $600 for the early withdrawal.
-
4
Multiply the total amount of the IRA early distribution by 10 percent. This 10 percent is the early withdrawal penalty. For a $10,000 early withdrawal, the 10 percent penalty is $1,000.
-
5
Add all of the taxes and penalty fees together t determine the total amount of money you will pay for making an early withdrawal. For a $10,000 early withdrawal using the tax rates in the previous steps, the federal tax is $2,000, the state tax is $600 and the early penalty is $1,000. In total you will pay $3,600 to withdraw $10,000 from your IRA account before the age of 59 and a half.
-
1
