What is an Early withdrawal penalty?
An early withdrawal penalty is a 10% additional tax levied by the IRS on distributions from qualified retirement accounts taken before the account holder reaches age 59½, applied in addition to ordinary income taxes owed on the withdrawn amount. This penalty encourages long-term retirement savings by making premature distributions costly and discouraging the use of retirement funds for non-retirement purposes. Several exceptions permit penalty-free early withdrawals, including qualified higher education expenses, first-time home purchases of up to $10,000, unreimbursed medical expenses exceeding 7.5% of the account holder's adjusted gross income, disability, and the death of the account holder. Child traditional IRAs remain subject to early withdrawal penalties, even if the account holder is young, making it crucial to preserve these funds for retirement rather than accessing them prematurely. Instead's platform helps taxpayers understand distribution options and penalty exceptions while maintaining proper documentation for qualified withdrawals that avoid the 10% penalty.
.png){kind=small}