Inputs used to generate the tool’s results
The following information is required:
- Amount you plan to withdraw
- Your planned retirement age
- Your date of birth
- Assumed annual rate of return on retirement investments (any percentage from 1%-8%)
- Your current federal income tax rate based on the percentage you enter. If you do not know your federal income tax rate, the tool will estimate it based on the current annual salary that you enter, as well as other information about any deductions to your gross annual income that you provide
- Your current annual salary
Note: Although the tool asks you to enter your reason for the withdrawal, this is for internal tracking purposes only and is not considered in your calculation.
Assumptions and methodology used to generate the tool’s results:
The results generated by this tool are:
- Impact of early withdrawal
- Loss of potential asset growth
Impact of Early Withdrawal calculation
The tool illustrates the potential impact of taxes and penalties (if applicable) on the amount of an early withdrawal from your retirement account. Taxes and penalties are assumed to occur for those under age 59 1⁄2. Some exceptions may apply. You should consult your tax advisor to determine your specific tax situation. (Additional Information: As part of the CARES Act, coronavirus related distributions, made in 2020, are not subject to the 10% early distribution tax. Please note no changes have been made to the Early Withdrawal Calculator to exclude the tax and the illustration will continue to include the early withdrawal distribution tax.)
Impact of income taxes
The impact of income taxes calculation shows how much the amount of your withdrawal could be reduced due to taxes. Withdrawals from your qualified plan are taxed as ordinary income at the federal tax rate at the time of the withdrawal. The federal tax rate assumed is the percentage you enter into the tool. State income taxes may also apply, but are not assumed by the tool.
Impact of early withdrawal penalty
The early withdrawal penalty calculation shows how much the amount of your withdrawal could be reduced due to penalties. The early withdrawal penalty, if any, is based on whether or not you would be taking the withdrawal from your retirement plan prior to age 59 ½. If you withdraw money from your retirement account before age 59 1/2, you will need to pay a 10% early withdrawal penalty, in addition to income tax. The tool assumes that you will incur this 10% penalty if you are currently under 59 ½.
If you left your employer in or after the year in which you turned 55, you may not be subject to the 10% early withdrawal penalty. There are other limited situations when the 10% early withdrawal penalty may be waived, including but not limited to, permanent disability and medical expenses greater than 7.5% of your adjusted gross income. [You should check with your benefits department for more information about your plan in order to determine whether an early withdrawal penalty applies to you.]
Read more: Retirement Calculator
Lost Asset Growth Calculation
The lost asset growth calculation shows how much the amount of your withdrawal could have grown if left in your retirement account until your retirement at the age that you enter. The rate of return assumed by the tool is the percentage you enter into the tool. The future value is calculated from today’s date until the planned age of retirement that you enter. The tool assumes that the single rate of return entered will apply each year (compounded annually) and that funds will remain invested until your age at retirement.
The loss of potential growth is shown pre-tax. It does not take into account any income taxes that might apply when you withdraw the funds at retirement.
Limitations of the tool
The tool does not:
- Apply any assumptions about state taxes
- Apply any assumptions about inflation
- Predict returns. The tool uses the rate of return you entered, which you may have based on historical performance of your retirement account. Past performance is not a guarantee of future returns.
- Consider whether you might have alternative sources of money available other than withdrawing money from your retirement plan. You should evaluate your options prior to making a withdrawal.
- Include or identify any specific investment alternative or distribution option available under the plan or IRA, unless such alternative or option is specified by the plan participant, beneficiary, or IRA owner.
- Take into account any impacts resulting from the possibility of your plan provider suspending contributions for a period of time after a withdrawal is taken. You should consult with your employer to determine if contributions could be suspended as a result of taking an early withdrawal.
- Consider the specific rules of your employer’s plan.