I got 40,000.00 out of my simple ira and at the time I had 35% taken out for federal and 5% taken out for state. And now I heard I will be pentalized 25% for taking it out so I owe 10,000.00 is that right?

Regular IRA or a Roth IRA? What is the money going to be spent for? THat matters.

The penalty is usually 10% however (depending on what its used for) and whatever tax bracket you are in that year for the tax withholding.

If you are subject to the 25% penalty (two-year rule) rather than the 10% penalty, then the $10,000 would be correct for the penalty, and you still have to pay the income tax. So if you are in a 15% bracket you are going to lose 40% to the Treasury plus whatever your state percentage is. Ouch!

The penalty for early withdrawal from a SIMPLE IRA is indeed 25% if the withdrawal is made within the first two years of the employee's participation in the plan - ouch! Since you have already had 35% withheld for federal, assumomng you are in the 15% tax bracket as MLSNC says that means your total federal tax bill will be 40%. So the balance that you will owe above the 25% already withheld is another 5%, or $2000. This assumes that the money was not withdrawn under any of the "hardship" provisions that would prevent the 25% penalty from applying.