If you decide to take an early withdrawal, the IRS requires that we withhold 20% for federal income taxes. Also, if you are under age 59 1/2, there will be an additional 10% early withdrawal penalty that the IRS imposes for early distribution. You will pay this penalty when you file your income taxes for the year; however, you can request additional withholding at the time of distribution and this will be sent to the IRS along with the federal income tax.
In many cases, the standard 20% withholding that the IRS imposes is not enough to cover the taxes you will owe on the withdrawal. The amount you will owe in taxes will depend upon a number of variables, including your Adjusted Gross Income, tax bracket, and the number of dependents you have. If you have more questions, we recommend you speak to a competent tax advisor.