How to Calculate an IRA Withdrawal Penalty
- 1). Figure the amount of your withdrawal that is taxable. For a traditional IRA, the whole distribution is taxable, barring nondeductible contributions made. If you have made nondeductible contributions, divide your total nondeductible contributions by the value of your traditional IRA and subtract the result from 1. Then multiply the result by your distribution total to find the taxable amount. For example, if you have made $8,000 of nondeductible contributions, your traditional IRA is worth $40,000 and your early distribution totals $10,000, you would divide $8,000 by $40,000 to get 0.2, subtract 0.2 from 1 to get 0.8 and multiply 0.8 by $10,000 to find your taxable portion of your IRA withdrawal equals $8,000.
For Roth IRAs, your early distribution is only taxable in the amount that exceeds the amount of contributions in the account. For example, if you had made $3,000 worth of contributions to a Roth IRA and took an early distribution of $4,000, you would subtract $3,000 from $4,000 to find that $1,000 is taxable. - 2). Subtract the value of any exemptions from the early withdrawal penalty from the taxable portion of the early withdrawal. For example, if you spent $5,000 on higher education expenses and the taxable portion of your withdrawal equals $8,000, you would subtract $5,000 from $8,000 to find that $3,000 of your early withdrawal is subject to the early withdrawal penalty.
- 3). Multiply the portion of your withdrawal subject to the early withdrawal penalty by 0.1 (10 percent) to calculate your IRA withdrawal penalty. Finishing the example from Step 2, if $3,000 of your withdrawal is subject to the early withdrawal penalty, you would multiply $3,000 by 0.1 to find you would owe a $300 early withdrawal penalty.
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