Traditional IRA Early Withdrawal Tax

The traditional IRA early withdrawal tax and penalty is something that most traditional IRA owners are afraid of. Below is information on traditional IRA early withdrawal tax as well as penalties for premature withdrawal from the traditional IRA account.

What is the tax definition of traditional IRA early withdrawal?

According to the IRS, early withdrawals or early distributions from a traditional IRA are defined as:

• the amounts withdrawn or distributed from the traditional IRA account or annuity before the IRA owner reaches the retirement age of 59½ or
• the amounts received when you cash in retirement bonds before the retirement age of 59½

What is the traditional IRA early withdrawal tax?

Unless the traditional IRA early withdrawal amount is tax exempt because of the nature of what the IRA withdrawal is used for, the amount of traditional IRA early withdrawal is taxed at the ordinary income tax rate of the IRA owner. Since when contributing to the traditional IRA, the owner claimed the tax deductions (if allowed), when taking withdrawal the owner has to pay tax on the withdrawal amount from the traditional IRA.

Additional 10% tax on traditional IRA early withdrawal

When the withdrawal from the traditional IRA is an early withdrawal, the IRA owners has to also pay an additional 10% tax of the amount withdrawn early. That early withdrawal amount from the traditional IRA is included in the IRA owner's gross income.

The IRS tax form 5329 called Reporting Additional Tax form is used to calculate the amount of tax owed to the IRS as a result of early withdrawal from the traditional IRA.