What It Means
The early withdrawal penalty is the 1010,000 stepsA popular daily step goal that began as the name of a 1960s Japanese pedometer; later studies find health benefits begin well below it. See more% additional tax the IRS charges on the taxable part of money taken from a retirement plan or IRATraditional IRAAn individual retirement account where contributions may be tax-deductible, growth is tax-deferred, and withdrawals are taxed as income. See more before age 59½. It comes on top of the regular income tax owed on that money. The IRS lists exceptions, some for all accounts and some only for workplace plans or only for IRAs, and a withdrawal that fits one owes no 10%.
Try It: Owes the 10% or Not?
Four people take money out before 59½. Pick an answer for each; the IRS exceptions decide.
How People Say It
- "If I cash out my 401(k) I'll get hit with the penalty."
- "There's an exception for a first home from an IRA."
- "I'm 56 and I left that job, so no 10% on that plan."
The Breakdown
What the rule says. Money taken from a 401(k)401(k)A retirement plan run through an employer that lets you put part of each paycheck into investments, before tax or as Roth, up to a yearly IRS limit. See more, 403(b) or other workplace plan, or from a traditional or Roth IRARoth IRAAn individual retirement account funded with after-tax money, where qualified withdrawals, earnings included, come out tax-free. See more, before age 59½ generally owes a 10% additional tax on the part that's taxable, plus regular income tax on that part. The IRS calls it an additional tax; most people call it the penalty.
Who it applies to. Anyone under 59½ taking a taxable distribution that doesn't fit an exception. Original Roth IRA contributions come out tax-free, so the 10% falls only on taxable earnings.
Main exceptions, from the IRS list
| Situation | Workplace plans | IRAs |
|---|---|---|
| Total and permanent disability | Yes | Yes |
| Paid to a beneficiary after death | Yes | Yes |
| Terminal illness certified by a doctor | Yes | Yes |
| Series of substantially equal periodic payments | Yes, after leaving that employer | Yes |
| Leaving the job in or after the year you turn 55 | Yes | No |
| Paid to an ex-spouse under a QDRO | Yes | No |
| Medical costs above 7.5% of adjusted gross incomeGross incomeThe full amount you earn before taxes and other deductions come out. For federal taxes, it's all income you receive unless a law exempts it. See more | Yes | Yes |
| Health insuranceHealth insuranceA plan you pay a premium for that covers part of your medical costs, while you pay your own share through a deductible, copays and coinsurance. See more premiumsInsurance premiumThe amount you pay to keep an insurance plan, such as health insurance, in force, usually monthly, quarterly or yearly, whether or not you use any care. See more while unemployed | No | Yes |
| Higher education costs | No | Yes |
| First home, up to $10,000 | No | Yes |
Documents. The withdrawal is reported on your tax return, and IRS Form 5329 is where you claim an exception or figure the additional tax; its instructions list the exception codes.
Official source. IRS, "Retirement topics: Exceptions to tax on early distributions," checked September 30, 2026. Some public safety workers can use the separation exception from age 50.
Good to Know
A hardship withdrawal is still an early withdrawal: the IRS says there's no exception specifically for hardship, so it can owe the 10% as well as income tax. The list above is the main one, and the IRS page carries every exception with its conditions, some of them recent. Before taking money out early, compare the full cost with other options and ask a tax professional whether an exception fits.
FAQ
How much is the early withdrawal penalty on a 401(k)?
10% of the taxable amount taken out before 59½, on top of regular income tax, unless an IRS exception applies. On a $10,000 withdrawal that's $1,000 of additional tax before income tax is counted.
Can I withdraw from my 401(k) at 55 without the penalty?
From the plan of the job you left, yes, if you left in or after the year you turned 55, according to the IRS. The exception doesn't cover IRAs or plans from earlier jobs.
Is there a penalty-free way to use an IRA for a first home?
Yes. The IRS lets you take up to $10,000 from an IRA for a qualified first home purchase without the 10% additional tax, though income tax still applies to the taxable part.
Do It in Buhata
Accounts
Keep your retirement balances in Accounts next to your emergency savings, so the account you reach for in a pinch is the one without a 10% tax attached.
Open BuhataRelated Terms and Categories
- 401(k)
A retirement plan run through an employer that lets you put part of each paycheck into investments, before tax or as Roth, up to a yearly IRS limit.
- Traditional IRA
An individual retirement account where contributions may be tax-deductible, growth is tax-deferred, and withdrawals are taxed as income.
- Roth IRA
An individual retirement account funded with after-tax money, where qualified withdrawals, earnings included, come out tax-free.
- Rollover IRA
An IRA opened to receive money moved out of a workplace retirement plan such as a 401(k), usually after leaving a job.
- Health savings account
A tax-advantaged account for medical costs, open to people with an HSA-eligible health plan, where money goes in, grows and comes out for care without federal income tax.
- Emergency fund
Money set aside only for unplanned costs, like a car repair, a medical bill or a lost paycheck, kept where you can reach it quickly.
Sources
Internal Revenue Service, "Retirement topics: Exceptions to tax on early distributions"; IRS, "Topic no. 557, Additional tax on early distributions from traditional and Roth IRAs"; IRS, "Topic no. 558, Additional tax on early distributions from retirement plans other than IRAs"; IRS, "Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs)"; IRS, "Instructions for Form 5329"; IRS, "Hardships, early withdrawals and loans"
- www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-exceptions-to-tax-on-early-distributions
- www.irs.gov/taxtopics/tc557
- www.irs.gov/taxtopics/tc558
- www.irs.gov/publications/p590b
- www.irs.gov/instructions/i5329
- www.irs.gov/retirement-plans/hardships-early-withdrawals-and-loans
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