Circumstances can occur that pressure people to withdraw money from their retirement account before their retirement date. This pressure can be created when a person is laid off from a job. It can be created when you need to pay an attorney to keep a fair haired son out of prison. Maybe a Mom and Dad feel the need to pay for their daughter’s wedding. The range of circumstances creating financial pressure that tempts a person to withdraw money from an IRA or retirement plan is wide and various. Giving in to this temptation can be costly.
If you have a traditional IRA or funds in an employer sponsored retirement account, you generally have to include any amount withdrawn from this account in your taxable income. If you haven’t reached age 59 ½ when you withdraw money from a retirement account, a 10% penalty is imposed on the taxable portion of the distribution. In Arkansas, the penalty for early withdrawal of funds from a retirement account is 1% of the taxable distribution. So let’s do some simple arithmetic.