This equation computes the amount of cash you must withdraw from an IRA, to get a chosen cash-out amount, if you are performing an early IRA withdraw.

Usage

This equation computes the amount you must withdraw from an IRA to include the applicable taxes.  An early IRA withdrawal is subject to both income tax and a 10% penalty, so you must withdraw substantially more money from the IRA that the amount you wish to receive. You enter the total amount you wish to have as cash from the withdrawal and the equation returns the amount you have to withdraw total to cover your desired cash amount plus the applicable taxes.

The IRS explains this as follows:

   If you are under age 59½ at the time of the distribution, any taxable portion not rolled over may be subject to a 10% additional tax on early distributions unless an exception applies.¹

Example

Sometimes circumstances force us to pay the penalty the IRS imposes to take an early withdraw.  If there is no exception applicable to your case, you will have to pay both tax on the earned income (the IRA withdraw is treated as earned income) and an extra tax penalty of a flat 10% of the withdrawal.

If you had an IRA account and wanted to see if you could withdraw $15,000 along with whatever additional funds would have to be withdrawn to cover the taxes ad penalty, you  would start by entering your desired cash out. 

Next you would enter your federal tax rate.  This equation defaults to 28% for a federal tax rate, so we will use that for this example.  This percentage tax rate would be the tax rate you experienced the previous year in most cases, which you can compute using the Tax Rate equation.  This percentage varies for ever individual but is basically the total tax you owe each year divided by your reported gross income for the year.

Then enter your state tax rate.  This equation defaults to 4.63% which is the flat state tax rate in 2014 for the state of Colorado.  You should enter the tax rate for your own state as a decimal fraction.

So, if you desired to get out $15,000 in cash and input:

• Cash Out:  $15,000
• Federal Tax: 28% (0.28)
• State Tax:  4.63% (0.0463)

This equation would tell you the total withdraw from your account would have to be: $26,146.07 .

See also

• IRA Withdraw (Early) - Cash Out
• IRA Withdraw (Early) - Cash Out - with estimated Tax Rates
• IRA Withdraw (Early) - Withdraw Total
• Tax Rate
• IRS Topic 558 - Additional Tax on Early Distributions from Retirement Plans Other Than IRAs
• IRS Topic 413 - Rollovers from Retirement Plans

• Publication 560 (2014), Retirement Plans for Small Business 

1. ^ IRS Tax Topic 413