Glossary
Early withdrawal penalty
An extra 10 percent federal tax the IRS generally charges on the taxable part of money taken out of a retirement account before age 59 and a half, on top of the regular income tax due.
Updated September 15, 2026
A 401(k) or an IRA gets tax breaks because the money is meant to stay invested until retirement. If you take out the taxable part before age 59 and a half, the IRS generally adds a tax of 10 percent, on top of the ordinary income tax you owe on it.
On a $1,000 early withdrawal, the extra tax is $100, so you keep $900 minus the income tax you owe on the $1,000.
The IRS defines limited exceptions, such as total and permanent disability and certain unreimbursed medical expenses, and the extra tax is reported on your federal tax return. Whether an exception applies depends on your circumstances, and a tax professional can help. Banks use the same phrase for something else: a penalty the bank charges for cashing a certificate of deposit before its maturity date.
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How this definition was made
- Written by an AI model (Claude) following Teloria's editorial standard.
- Every factual claim was checked by a separate AI fact-check against official US government and regulator sources.
Official sources consulted
- irs.gov · /taxtopics/tc558
- irs.gov · /retirement-plans/plan-participant-employee/retirement-topics-exceptions-to-tax-on-early-distributions
- irs.gov · /retirement-plans/traditional-iras
- irs.gov · /taxtopics/tc557
- consumerfinance.gov · /ask-cfpb/what-is-a-certificate-of-deposit-cd-en-917/