Assuming you had retirement plan under IPERS - http://www.ipers.org/ - there are two issues in connection with this distribution.
There are certain exceptions to this penalty. The following five exceptions apply to distributions from any qualified retirement plan:
The following additional exceptions apply only to distributions from a qualified retirement plan other than an IRA:
The following exceptions apply only to distributions from IRAs:
Please review if any related to your situation.
To estimate your tax liability we need to know your filing status? any dependents? are you using standard deduction or itemize? - what would be estimated amount? any other deductions you use?
Please let me know if any clarification needed.
To estimate I would need these information:
So, I estimated that your gross distribution will be $125,000.
This will push your income to $94,000 + $125,000 = $219,000 and your tax bracket will be 28%
your early distribution penalty will be 10% - $12,500
your income taxes (assuming standard deduction - $10,700 for 2007, two dependents, married filing jointly) - ~$50,000. State taxes if any - will be an additional
Because of high adjusted gross income - you will not be eligible for the educational expenses deduction.
Without distribution - your federal tax liability would be ~$12,700. - means your additional taxes would be ($50,000 - $12,700) + $12,500(penalty) = ~$49,800 plus educational credit.
Please think twice before taking distribution.
I assumed that you are going to take $125,000 gross distribution that would cost you ~$50,000 in additional taxes - this is correct. In additional to 10% penalty - you will be pushed into higher tax bracket.
By the way, you may avoid 10% penalty for amount you spend for qualified higher education expenses. To do so - you should roll over funds from your account to IRA and then take a distribution - see exemptions above.
Please plan your distribution wisely.