Roth IRA Withdrawal

Because you are under age 59½, an unqualified Roth IRA withdrawal is subject to the "ordering rules." Your **contributions** come out first (tax and penalty-free). Your **earnings** come out last and are subject to taxes and penalties. Assuming the entire **$125,000 consists of earnings**: **Federal:** * **Income Tax:** The $125,000 is added to your $80,000 salary. This pushes much of the withdrawal into the 24% bracket. Estimated Federal Tax: **$27,000 – $29,000**. * **Penalty:** A 10% early distribution penalty applies to the earnings. Penalty: **$12,500**. **California State:** * **Income Tax:** California treats this as ordinary income. At your bracket, the marginal rate is 9.3%. Estimated State Tax: **$11,625**. * **Penalty:** California imposes an additional 2.5% early withdrawal penalty. Penalty: **$3,125**. **Total Potential Impact:** Approximately **$54,000 – $56,000** in combined taxes and penalties. **Note:** If a portion of that $125,000 represents your original contributions, that specific portion is not taxed or penalized. You must check your Form 5498 history to determine your "basis." If you are unsure of your contribution total, consult your latest brokerage statement.