Tax Benefits and Penalties of an IRA

Each IRA has its own unique package of benefits. The benefits can include tax-deductible contributions, tax-deferred income and tax-free income. Congress understands the importance of saving for retirement and education, and has established incentives for taxpayers to save for these milestones on their own.

Each IRA has a 10% penalty if certain conditions are not met when money is withdrawn. Also, the withdrawn amount may be included as taxable income. In some situations, after federal and state taxes and the 10% penalty, IRA owners may net or walk away with only about half of the withdrawn amount because of the taxes and penalties incurred.