If your tax withholdings and/or estimated tax payments are not enough to cover your taxes and the penalty, you will owe money when you file your return. You must pay this penalty in addition to regular income tax. The tax penalty for an early withdrawal from a retirement plan (IRA, 401, etc.) is a flat penalty rate equal to 10% of the distribution. Additional Tax Penalty for an Early Withdrawal In addition to normal income tax, you will owe a 10% penalty of additional tax on the amount of the early withdrawal unless you meet an exception. As part of your gross income, you will owe tax on the distribution at your normal effective tax rate. If you make an early withdrawal from a qualified retirement plan, the amount is added to your gross income unless you meet one of the early withdrawal exceptions. Generally, state or local government 457 plans are not considered qualified retirement plans, and early distributions from these are not subject to a federal tax penalty (though there may be state penalties). A 403(b) or similar plan for employees of public schools and tax-exempt organizations.An employee annuity plan, such as a 403(a). Based on your answers to several questions, we will prepare the correct forms to report any withdrawals you make from your retirement plan.Ī qualified retirement plan is any of the following: The easiest and most accurate way to report an early withdrawal and determine if you owe any taxes is to start a free tax return on. In general, an early distribution or early withdrawal is any money you take out of a qualified retirement plan before you reach the age of 59 1/2. In order to discourage people from using their retirement savings for anything other than retirement income, the IRS charges a penalty of additional tax on most early withdrawals from retirement plans. That's why there are tax breaks like the Retirement Savings Contribution Credit and penalties for early distributions from retirement plans. The government wants you to save money for your retirement. What Happens When I Take from Retirement Early?
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