Early Withdrawal Penalty Calculator

How it works

Money taken from a traditional 401(k) or IRA is added to your taxable income for the year, so it is taxed at your marginal federal rate and usually by your state. If you are under 59½, IRC §72(t) adds a 10% additional tax on the taxable amount unless an exception applies.

Withholding is not the same as the tax you owe. An employer plan must withhold 20% of a distribution that could have been rolled over but was paid to you instead; an IRA withholds 10% unless you choose a different amount. The difference between withholding and the federal tax plus penalty is settled when you file (Form 1040, with the penalty on Form 5329).

The last figure is what the withdrawal could have grown to by retirement if it had stayed invested at the return you assume. Comparing it with the cash you keep shows the full cost of taking the money now.

Formula

federal tax  = amount × marginal rate
penalty      = amount × 10%   (0 if an exception applies)
state tax    = amount × state rate
net cash     = amount × (1 − marginal rate − 10% − state rate)
withheld     = amount × 20% (employer plan) or 10% (IRA)
due at filing = federal tax + penalty − withheld
value given up = amount × (1 + return)^years

Example

Taking $20,000 from a 401(k) at a 22% federal rate and a 5% state rate costs $4,400 of federal tax, a $2,000 penalty and $1,000 of state tax: $7,400 in all, or 37% of the withdrawal. You keep $12,600.

The plan withholds 20% ($4,000), so the check is $16,000 and $2,400 more federal tax is due when you file. Left invested for 20 years at an assumed 7%, the $20,000 could have grown to $77,393.69.

Assumptions and limitations

• The 10% additional tax is IRC §72(t)(1). Common exceptions: leaving your employer in or after the year you turn 55 (that employer's plan only, not IRAs), total and permanent disability, substantially equal periodic payments, and others listed in IRS Publication 590-B and the Form 5329 instructions. Check that yours applies before choosing it.
• SIMPLE IRA withdrawals within two years of first participating owe 25% instead of 10%, and governmental 457(b) plans do not owe the 10% tax; neither case is modelled.
• The whole amount is treated as taxable. Roth contributions, after-tax contributions and nondeductible IRA basis come out tax free and are not modelled.
• Federal tax is the amount times one marginal rate. A large withdrawal can push part of it into a higher bracket, and the extra income can reduce credits or deductions; use the rate of the highest bracket the withdrawal reaches for a conservative estimate. State tax is a single flat rate you enter; some states add their own early-withdrawal penalty.
• Withholding: 20% mandatory on eligible rollover distributions from employer plans paid to you (IRC §3405(c)); 10% default on IRA distributions, which you can change (IRC §3405(b)). Hardship distributions are not eligible rollover distributions and are withheld at 10% unless you elect otherwise; that case is not modelled. State withholding is not modelled.
• The value given up uses a constant return you choose, compounded yearly, and ignores the taxes you would pay on withdrawing it later.
• This is an estimate for planning. It is informational and educational and is not financial, tax or legal advice.

Frequently asked questions