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From reading the IRS info online, my understanding was that I'd pay a 10% early withdrawal penalty, plus taxes on the funds as if they were income.

Correct for federal taxes. There is also a state income tax effect in most states. I read elsewhere in the thread that the relevant state is California. I don't know much about California income taxes, other than they exist and are reputed to be one of the highest state tax rates in the nation.

When I spoke to my tax lady about it last week she said my $3k (30%) estimate was probably as accurate as could be without actually running numbers.

It sounds to me like your tax lady was giving you a quick answer so she could move on to other work. It doesn't sound like an accurate answer.

I've read ahead, so I know AJ has discussed the marginal tax rate issue. Further, the additional income can affect other areas of your return. What it affects depends on what you have; best case, you have nothing that is adversely affected by increased non-earned income. Worst case, the marginal effect of an early withdrawal is large.

How large, you ask? I do taxes for low income people as a volunteer. I frequently see people who withdrew from retirement funds to pay bills. A low income client with a marginal federal tax rate of 15% and a marginal NY tax rate of 6.85% or lower might end up with an effective tax rate of 40% or so on an early distribution from an IRA. At that end of the income scale, besides 15% federal + 10% federal penalty + 6.85% NY taxes, the early distribution frequently has an adverse impact on the Earned Income Credit. I've also see it cause more of Social Security to be taxable. At high income levels, it could be driving phaseouts of itemized deductions or AMT.

If you've already done this, it's done. That's typically the case when I see these; it's very expensive to liquidate retirement funds to pay down debt. The best I can do for clients is probe for reasons some of it might be exempt from the penalty; paying down credit cards isn't on the list of exemptions. But if you had qualified educational expenses, or medical expenses in excess of 7.5% of your AGI, or some less common things that I'd have to look up, you could get out of part of the penalty.

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