- 1). Estimate the amount you want to withdraw. This amount is important, because penalties and taxes will be assessed based on actual dollars you ask for, not the whole value of the account. Keep your estimate conservative until you know exactly what costs are involved. Multiply the amount you plan to withdraw by 10 percent. This is the IRS penalty. This is only part of the cost.
- 2). Determine your current federal tax rate using your previous year's tax return. It will list the tax rate you paid as a percentage. Multiply the amount of your early withdrawal by that percentage. This is the federal tax you will owe on the funds you take out of your retirement account.
- 3). Determine your state tax rate. Check last year's state tax returns, and find the tax rate you paid your state. Multiply the amount you plan to withdraw by this percentage. This will be your state tax.
- 4). Add the figures you got from the 10 percent penalty, your federal tax and your state tax. This is the amount of your liability for withdrawing funds early from your retirement account.
- 5). Examine your possible IRA exemptions. For an IRA, you are exempt from penalties if you paid more than 7.5 percent of your income in medical expenses, bought a house (if you didn't own one in the past ten years and don't plan to withdraw more than $10,000), paid for college tuition, are permanently disabled, or were unemployed and had to pay insurance premiums.
- 6). Look at 401K exemptions. If you retire at age 55 or after, you do not pay a penalty for a 401K withdrawal. You also have no penalty if you paid more than 7.5 percent of your income on medical expenses. If the payments were decreed by a divorce decree or separation agreement, you will not pay a penalty.
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