How Do You Calculate Interest & Penalties For IRA Early Withdrawal?
Taking money out of an IRA (Individual Retirement Account) before you reach age 59 1/2 without a valid exemption can lead taxes and penalties on the entire amount withdrawn. While the IRS loves to collect money, it does allow for several exemptions that enable you to avoid the 10 percent penalty on your distribution. When taking money out of an IRA, do some simple computations to determine what you tax liability is. It’s best to know this and plan for it rather than have a huge tax bill and need to figure out where to get the resources to pay it. Determine the reason for the distribution. Allowable exemptions include medical expenses more than 7.5 percent of your annual income, a first-time home purchase up to $10,000, foreclosure prevention or school tuition or fees. These exemptions go beyond the IRA owner and include immediate family (children, parents, spouse and siblings). Total the exact amount you need that qualify for exemptions by adding all bills together. Calculate how much
