What Is an Early Withdrawal Penalty?

If you withdraw money from a 401(k) or traditional IRA before age 59½, you'll typically owe a 10% early withdrawal penalty on top of regular income taxes. There are exceptions: disability, death, certain medical expenses, first-time home purchase (IRA only), and substantially equal periodic payments (72(t) distributions). The penalty can turn a $10,000 withdrawal into far less after taxes and the penalty. Think carefully before tapping retirement funds early.