Calculating the penalties of an early withdrawal from a 401(k) is done using the amount a person wants to withdraw, federal income tax rate, state income tax rate, age of retirement, number of years before retirement, which applies to people who have not retired, and the expected rate of return. A person can also opt to use online applications that help in determining the penalties.Continue Reading
As of January 2015, the government charges 10 percent on any withdrawal made from 401(k) before a person gets to 59 1/2 years of age. However, if a person is using the money to solve hardships, buy a first home or meet higher education expenses, he or she may get a waiver of that penalty. It is important to note that the IRS does not consider being broke as a hardship. A person also needs to know his or her minimum distribution.
The IRS provides 12 exceptions that allow a person to avoid the penalty. A person is only required by law to start withdrawing from 401(k) account once he or she is 70 1/2 years old. If an individual is still working at 70 1/2 years of age, he or she can postpone withdrawals until April 1 of the following year.Learn more about Investing
The formula for interest compounded annually is FV = P(1+r)n, where P is the principal, or the amount deposited, r is the annual interest rate, and n is the number of years the money is in the bank. FV is the amount of money the depositor would have after n years, or the future value of that investment.Full Answer >
Interest income from the redemption of a Series EE savings bond is reported on the bondholder's federal income tax return on the same line with other interest income, according to the U.S. Treasury. The bondholder is notified of interest income earned on the IRS form 1099-INT.Full Answer >
Account holders calculate taxes and penalties for early withdrawals from traditional IRA accounts by adding standard income tax plus a 10 percent penalty tax for the amount of the withdrawal, reports the IRS. The 10 percent penalty tax is waived if the withdrawal qualifies as an exception.Full Answer >
Making an early withdrawal on a 401(k) comes with stiff penalties, including paying income tax on the amount withdrawn, early withdrawal penalties and the loss of compounded earnings on the amount withdrawn, explains CNN Money. However, 401(k)s allow qualified hardship withdrawals that waive some of the standard penalties.Full Answer >