How Much Tax for an Early Distribution From a Roth IRA

Qualified distributions from Roth individual retirement accounts come out totally tax-free, but you have to meet several criteria. First, your Roth IRA must be at least five years old. Second, your must be 59 1/2, or permanently disabled, or using up to $10,000 for a first home. If you can't wait until you qualify and take an early distribution, any earnings you withdraw will be taxable, and, unless you're eligible for an exception, you'll be hit with an extra tax penalty. On the bright side, the Roth IRA rules let you take out your own contributions first, which minimizes the taxable portion of the early withdrawal.

Step 1

Subtract the amount of contributions in your Roth IRA from the amount of your early distribution to figure the taxable portion. For example, if you take a $15,000 distribution and your Roth IRA contains $10,000 of contributions, only $5,000 is taxable. If your contributions exceed the amount of the withdrawal, you don't owe any taxes or early withdrawal penalties.

Step 2

Multiply the taxable portion by your marginal tax rate, meaning the rate at which your last dollar of income for that tax period is taxed. For example, if you fall in the 15-percent tax bracket and have $5,000 of the Roth IRA distribution being taxable, you owe $750 in income taxes.

Step 3

Subtract the value of any exception you qualify for from the taxable portion of your early Roth IRA distribution to figure the portion subject to the 10-percent additional tax penalty. Continuing the example, if you paid $3,000 for medical insurance premiums while unemployed, subtract $3,000 from the $5,000 taxable portion to find that only $2,000 is hit with the early withdrawal penalty.

Step 4

Multiply the portion of the withdrawal subject to the early withdrawal penalty by 0.1, or 10 percent, to figure the additional tax penalty. Finishing the example, multiply $2,000 by 0.1 to find you'll owe a $200 additional tax penalty on top of the $750 of income taxes.

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About the Author

Mark Kennan is a writer based in the Kansas City area, specializing in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."

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