Three costs, not one
A distribution from a traditional 401(k) or IRA is ordinary income in the year you take it. If you are under 59½ and no exception applies, an additional 10% tax is charged on the taxable part on top of the income tax (Form 5329). A SIMPLE IRA withdrawn in the first two years of participation carries 25% instead. Most states tax the distribution as income too, and a few add their own penalty. Added together, a worker in the 22% bracket paying 5% state tax loses 37 cents of every dollar withdrawn, before counting the retirement growth the money will never earn.
The 20% you do not get to decide about
When an employer plan pays an eligible rollover distribution to you rather than directly to another plan or IRA, the plan must withhold 20% for federal income tax. It is not the tax (that is settled on your return), but it means a $20,000 cash-out arrives as $16,000. If you meant to roll the money over, you have 60 days to deposit the full $20,000 in an IRA, including the $4,000 you never received; the withheld amount comes back at filing time. A direct rollover avoids all of it. IRA custodians are not under the mandatory rule, though they withhold 10% unless you elect otherwise.
Worked example
A single 40-year-old earning $50,000 takes $20,000 from a former employer's 401(k) in 2026 with no exception. The additional tax is $2,000. Stacked on top of $50,000, the withdrawal is taxed mostly at 12% and partly at 22%: with a $16,100 standard deduction, taxable income rises from $33,900 to $53,900, and the bracket arithmetic gives $2,750 of income tax on the withdrawal. The plan withholds $4,000 up front, which does not cover the $4,750 combined, so about $750 more is due in April. In a state with a 5% tax the keep drops by another $1,000, to $14,250 of the $20,000.
The exceptions that remove the 10%
The IRS maintains a table of exceptions, and which account you hold matters. Leaving your employer in or after the year you turn 55 (50 for public-safety employees) removes the additional tax on that employer's plan but not on an IRA. The $10,000 first-home exception and the higher-education exception work the other way: IRAs only. Both plans and IRAs get the exceptions for disability, death, substantially equal periodic payments, an IRS levy, reservist call-ups, unreimbursed medical expenses above 7.5% of AGI, a birth or adoption ($5,000 per child), domestic abuse, terminal illness, disaster recovery and a $1,000 emergency expense. None of them removes the income tax; they only remove the 10%.
What the calculator leaves to you
It treats the whole withdrawal as taxable, which is right for pre-tax money and wrong for after-tax contributions or a Roth account, where contributions come back tax-free. For the medical exception it applies the 7.5%-of-AGI floor to the expenses you enter; for an education bill, choosing that exception tells it the amount qualifies. Hardship withdrawals are a plan rule about whether you may take the money, not a tax exception. They are still taxed and penalized unless one of the listed exceptions also applies. And a plan loan is not a distribution at all unless you default on it.
Official sources used on this page
- Topic 558, Additional tax on early distributions from retirement plans other than IRAs: 27-May-2026
- IRS: Retirement topics: exceptions to tax on early distributions (the full table, plans vs IRAs): 11-Dec-2025
- Publication 590-B (2025), Distributions from IRAs: early-distribution exceptions: 2025
- Topic 413, Rollovers from retirement plans: mandatory 20% withholding and the 60-day rule: 14-May-2026
- Rev. Proc. 2025-32 (2026 brackets and standard deduction): 2025-10-09
Every rule record names its source, revision and the date it was last verified; the results panel prints the ones your calculation used. Rules last verified 2 September 2026.