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The basics
A withdrawal can be taxable, penalized, both, or neither. The answer depends on account type, owner age, basis, and any modeled exception. A 10% penalty is not the same thing as income tax—it is added on top.
Illustrative numbers
Why gross balance is not spendable balance
Early pre-tax withdrawal$20,000
Illustrative 10% penalty$2,000
Income taxcalculated on top
The account must provide more than the final cash need when income tax and a penalty apply. The funding engine solves for that gross amount within the available balance.
Calculation transparency
How it works in MoneyWhatIf
- 01
Eligible pre-tax withdrawals before age 59½ receive a modeled 10% penalty unless the account or configured flow has an encoded exception.
- 02
A Rule 72(t) payment from a traditional IRA or pre-tax workplace account is the configurable exception: the model waives the 10% amount on that scheduled payment while retaining ordinary-income tax.
- 03
Roth IRA access uses recorded contribution basis first for early-access logic; later amounts depend on the model’s account treatment.
- 04
An HSA distribution beyond the year’s remaining qualified medical-cost pool is ordinary income and receives a 20% extra charge before age 65. The pool includes modeled Medicare and IRMAA, declared medical spending, and eligible long-term-care costs, with amounts already deducted removed. Inherited accounts do not receive an early-withdrawal charge.
- 05
The selling order can hold costly early-access accounts behind cash or brokerage sources.
Keep in mind
Model limits
The tax code contains many exceptions whose facts the plan does not collect; an unmodeled exception can change the real result.
The annual engine dates withdrawals mid-year and reads 59½ at that moment. Given a birth month it is exact to the month; without one it charges the whole year the 59th birthday falls in, which is the same answer for every birthday but January.
This is a planning comparison, not a determination that a distribution qualifies for an exception.
This explanation documents the planning model. It is educational, not individualized tax, legal, Medicare, or investment advice.
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The words behind it
Related financial terms
Plain-English definitions, with 2026 figures and worked examples, from the financial terms glossary.