I had to withdraw from my Simple IRA retirement fund last year for emergency reasons. When I withdrew, the IRA company withheld 10% for federal taxes. When I did my taxes at the end of the year though, I was charged 25% in taxes. The form I received for the withdraw said that the taxable portion is XXX (where XXX is the total amount withdraw), not YYY (where YYY is the amount withdrawn after 10% withheld), and the form also said (box 4) the amount that was withheld and "taxable amount not determined"

So, my total penalty charged for the early withdrawal was 35% (along with it being counted as income and such, of course). Is there any case where this could happen, or was my taxes done wrongly?

  • 1
    According to JoeTaxpayer's answer, it should have only been penalized 25%. More than likely you received credit for the 10% that was withheld on a Form 1099-R. If you really were penalized 35%, check with whoever did your taxes or tax software. – Craig W Jul 23 '14 at 0:00

From SIMPLE IRA Plan FAQs - Distributions -

"....a distribution within this 2-year period, then the rate of additional tax under this special rule is increased from 10 percent to 25 percent."

This means you have tax on the full amount, plus a penalty of 25% if the account is less than 2 years old.

  • Where is the quote from? – littleadv Jul 22 '14 at 17:08

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