Personal Finance: Ask the Experts

Get advice on money matters from The Bee's Claudia Buck and a panel of local experts

March 31, 2013
How much of early IRA withdrawal is subject to 10% penalty?

Q: My question has to do with the money I'm using from an IRA for all my closing costs on purchasing my first house. I'm looking to spend about $20,000. By taking money early from an IRA to buy a house, my understanding is that they only waive the 10% tax penalty on the first $10,000. That means anything I use beyond that I pay taxes on, PLUS 10%.
I'm trying to get an idea of whether or not I will owe taxes next year based on this additional taxable income. My income for 2013 will probably be around $72,000, not including the IRA distribution. I think my only credit is the child tax credit and as of 4/11 I claim single and 0. (Prior to this I claimed single and 5. I figure it's wise to pay more taxes this year). I will file as head of household in 2013.
Salem, OR

A: The general rule for IRA withdrawals before age 59 and 1/2 is that they are subject to a 10% federal excise (penalty) tax. The State of Oregon does not assess a separate state excise tax. There are certain exceptions to this general rule, including a $10,000 exception for money withdrawn in connection with the purchase of the taxpayer's first principal residence.

If you withdraw $20,000, you will have to pay federal and state income tax on the entire withdrawal, to the extent that it exceeds any "basis" you may have in the withdrawal. You may have "basis" in your IRA if you made nondeductible contributions to it. You will also have to pay the additional 10% penalty tax on the amount of the distribution that exceeds the $10,000 exception for a first time home purchase.

There is not enough information in your question to allow me to estimate what your 2013 federal and state tax liabilities would be on the your 2013 income including the withdrawal, but here's a simplified example: If you will be in the 25% tax federal tax bracket (taxable income between $47,350 and $122,300 using the 2012 head of household rate schedule) the additional federal regular tax on the $20,000 withdrawal would be $5,000. The 10% penalty tax on the $10,000 in excess of the exception would add $1,000 to that for a total of $6,000. This would be in addition to the tax on your other income. You will also have the additional state tax on the $20,000. So your net withdrawal will be substantially less than $20,000.

You can have income tax withheld from your IRA withdrawal. The default federal withholding is 20%. You can direct your IRA custodian to withhold more.

It might be worth having a tax professional prepare a projection of your 2013 federal and state tax liabilities so that you will know before you withdraw the money how much the tax obligation will be. This may influence your decision about how much to withdraw given what you will need for your home purchase.

You will also be able to have withholding paid in so that you will not have large balance payable with your tax returns. At least you will avoid an unpleasant surprise next spring when you have your 2013 taxes prepared.

About Comments

Reader comments on are the opinions of the writer, not The Sacramento Bee. If you see an objectionable comment, click the "report abuse" button below it. We will delete comments containing inappropriate links, obscenities, hate speech, and personal attacks. Flagrant or repeat violators will be banned. See more about comments here.

What You Should Know About Comments on is happy to provide a forum for reader interaction, discussion, feedback and reaction to our stories. However, we reserve the right to delete inappropriate comments or ban users who can't play nice. (See our full terms of service here.)

Here are some rules of the road:

• Keep your comments civil. Don't insult one another or the subjects of our articles. If you think a comment violates our guidelines click the "report abuse" button to notify the moderators. Responding to the comment will only encourage bad behavior.

• Don't use profanities, vulgarities or hate speech. This is a general interest news site. Sometimes, there are children present. Don't say anything in a way you wouldn't want your own child to hear.

• Do not attack other users; focus your comments on issues, not individuals.

• Stay on topic. Only post comments relevant to the article at hand. If you want to discuss an issue with a specific user, click on his profile name and send him a direct message.

• Do not copy and paste outside material into the comment box.

• Don't repeat the same comment over and over. We heard you the first time.

• Do not use the commenting system for advertising. That's spam and it isn't allowed.

• Don't use all capital letters. That's akin to yelling and not appreciated by the audience.

You should also know that The Sacramento Bee does not screen comments before they are posted. You are more likely to see inappropriate comments before our staff does, so we ask that you click the "report abuse" button to submit those comments for moderator review. You also may notify us via email at Note the headline on which the comment is made and tell us the profile name of the user who made the comment. Remember, comment moderation is subjective. You may find some material objectionable that we won't and vice versa.

If you submit a comment, the user name of your account will appear along with it. Users cannot remove their own comments once they have submitted them, but you may ask our staff to retract one of your comments by sending an email to Again, make sure you note the headline on which the comment is made and tell us your profile name.

hide comments

On October 14, The Sacramento Bee will temporarily remove commenting from While we design the upgrade, we encourage you to tell us what you like and don't like about commenting on and other websites. We've heard from hundreds of you already and we're listening. Please continue to add your thoughts and questions here. We also encourage you to write Letters to the Editor on this and other topics.

Meet Our Financial Experts

Claudia Buck

Claudia Buck is The Sacramento Bee's personal finance columnist. Read all her columns here. Contact her at

Terri Carpenter

Terri Carpenter offers advice on job hunting, retraining and career counseling. Carpenter works at Sacramento Works Inc., the career and job training arm of the Sacramento Employment and Training Agency (SETA). With 15 years in the field, she has hands-on experience with everyone from first-time job seekers to career professionals seeking advice after a layoff or looking for a mid-career change. Ask her a question.

Carlena Tapella

Carlena Tapella is a partner in the law firm of Webb & Tapella Law Corp. in Sacramento. The firm specializes in estate planning and probate, such as estates, trusts, conservatorships and litigation. She is a past president of the Sacramento County Bar Association's Estate Planning & Probate Section. Ask her a question.

Kimberly Foss

Kimberly Foss, certified financial planner, is the founder of Empyrion Wealth Management in Roseville. With nearly 30 years in the financial industry, her clients include women in transition, small business owners, retirees and "pre-retirees." Ask her a question.

Jesse Weller

Gregory Burke, a CPA and tax expert with John Waddell & Co. in Sacramento since 1984, worked as an IRS tax auditor for six years. He’s a past chairman of the California Society of CPAs. Ask him a question.

Daniel Tahara

Daniel Tahara takes your questions about California taxes. Tahara, a spokesman for the state Franchise Tax Board, has 10 years of experience as a tax auditor. Ask him a question.

Personal Finance columns

October 2013

Sun Mon Tue Wed Thu Fri Sat
    1 2 3 4 5
6 7 8 9 10 11 12
13 14 15 16 17 18 19
20 21 22 23 24 25 26
27 28 29 30 31