- 1). Determine the amount of money withdrawn from your traditional IRA.
- 2). Determine the amount of your withdrawal, if any, that meets the early withdrawal exemption criteria.
- 3). Subtract the amount of your withdrawal that is qualified from the total amount. For example, if you withdraw $10,000 and only $6,000 went toward qualified expenses, you would be left with an unqualified withdrawal of $4,000.
- 4). Multiply the amount of the withdrawal that is unqualified by 0.1 to calculate the penalty on the withdrawal. For example, if $4,000 of your withdrawal was unqualified, you would owe a penalty of $400.
- 5). Include the entire amount of your distribution, both the qualified and unqualified amounts, as taxable income (thus, if you have a penalty, you will pay the penalty plus tax on the entire amount). The amount of income tax you pay on the distribution will depend on which tax bracket you are in. For example, if you are in the 25 percent tax bracket, a $10,000 distribution would result in $2,500 in income taxes.
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