What Is the Penalty for Making an IRA Withdrawal?

Many people are faced with the decision of whether or not they should make an IRA withdrawal. Although the funds are available to you, you will be assessed a penalty for withdrawing them. Here are the basics of how the IRA withdrawal penalty works.

IRA Withdrawals

With the rules that are associated with IRAs, you cannot start to withdraw money from them until you reach the age of 59 1/2. If you take money out before that time, you will be assessed a penalty for doing so. The government will charge you a 10% early withdrawal fee write off of the top of the funds.

Taxes

In addition to the 10% early withdrawal fee, you will also have to pay taxes on the money that you withdraw. The money will be counted as regular income for you and will be taxed at your regular marginal tax rate. Therefore, by the time you get your money, you will have paid a large percentage of it back to the government.

Hardship

In some cases, you may be able to withdraw your money without penalty. If you can qualify for a hardship, you will not have to pay the fee. Check with your IRA provider to see if your situation qualifies as a hardship before making the distribution.

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