Early Withdrawal Penalty Calculator

How the early withdrawal penalty works

When you take money out of a traditional IRA, SEP-IRA, SIMPLE IRA or qualified retirement plan (401(k), 403(b), 457(b) government plan) before age 59.5, the IRS charges a 10% additional tax on the amount withdrawn. This is on top of the ordinary income tax you already owe because the withdrawal is added to your taxable income for the year.

The 10% is not a withholding rate, it is an additional tax reported on IRS Form 5329. Your plan administrator will also withhold 20% from 401(k) distributions (or 10% from IRA distributions) for income taxes at the time of distribution, but the actual income tax due is calculated on your return based on your marginal rate.

Worked example (default values)

$20,000 from a Traditional IRA, age 45, 22% federal rate, 5% state rate, no exception:

1. Federal income tax: $20,000 x 22% = $4,400
2. State income tax: $20,000 x 5% = $1,000
3. Early withdrawal penalty: $20,000 x 10% = $2,000
4. Total cost: $4,400 + $1,000 + $2,000 = $7,400
5. Net received: $20,000 - $7,400 = $12,600
6. Effective rate: $7,400 / $20,000 = 37%

Source: IRS Publication 590-B, IRC Section 72(t). The federal and state income tax rows assume the withdrawal is taxed entirely at the marginal rate entered; actual tax may differ if the withdrawal pushes you into a higher bracket.

SIMPLE IRA: the 25% rule

A SIMPLE IRA carries an elevated early withdrawal penalty during the first two years of plan participation. If you take a distribution within two years of your first contribution to the plan, the additional tax is 25%, not 10%. After the two-year period ends, the standard 10% penalty applies.

The two-year period starts from the date of your first SIMPLE IRA contribution from your employer (not the date you set up the account). This rule is defined under IRC Section 72(t)(6). Make sure to select the "Within first 2 years" option in the calculator if this applies to you.

Common exceptions to the 10% penalty

The following exceptions allow you to avoid the 10% (or 25% SIMPLE) penalty. They do not exempt the distribution from ordinary income tax. Source: IRS Publication 590-B and IRS Tax Topic 558.

• Age 59.5 or older. Distributions after reaching age 59.5 are always penalty-free.
• Death or permanent disability. Distributions to a beneficiary after the account holder's death, or distributions if the account holder is totally and permanently disabled.
• Substantially equal periodic payments (SEPP / 72(t)). A series of substantially equal payments based on life expectancy, calculated using one of three IRS-approved methods. Payments must generally continue for five years or until age 59.5, whichever is later. See IRS Revenue Ruling 2002-62 and Notice 2022-6.
• First-time home purchase (IRA only). Up to $10,000 lifetime from an IRA toward the purchase, building or rebuilding of a first home. The $10,000 limit is a lifetime limit, not per year.
• Higher education expenses (IRA only). Qualified higher education expenses for the taxpayer, spouse, child or grandchild, paid from an IRA.
• Health insurance premiums while unemployed (IRA only). If you have received unemployment compensation for 12 consecutive weeks, you may withdraw from an IRA to pay health insurance premiums without penalty.
• Unreimbursed medical expenses exceeding 7.5% of AGI. The portion of unreimbursed medical expenses that exceeds 7.5% of your adjusted gross income in the same year.
• IRS levy. Distributions made as a result of an IRS levy on the retirement account.
• Separation from service at age 55+ (qualified plans only). For 401(k) and similar plans: if you leave your employer in or after the year you turn 55, distributions from that employer's plan are penalty-free. This does not apply to IRAs.

Does the penalty apply to Roth IRA withdrawals?

Roth IRA contributions are made with after-tax dollars and can always be withdrawn tax-free and penalty-free at any age, even before 59.5, because you have already paid tax on that money. Only the earnings portion of a Roth IRA withdrawal is subject to income tax and the 10% penalty, and only when both of these conditions are met: you are under age 59.5, and the account has been open for fewer than five years (measured from 1 January of the first year you contributed).

If you are unsure how much of your Roth IRA balance is contributions versus earnings, check your annual statements or the basis records on Form 8606 (filed with your tax return whenever you make a nondeductible IRA contribution).