Yes, 10% Penalty + Income Tax Applies
$50K withdrawal → only $31K received. But 20+ exceptions let you avoid the penalty.
Calculate Your Penalty🤔 Are You Subject to the Penalty?
On a $50,000 early withdrawal, you could lose:
$16,000 – $20,000
in penalties and taxes (varies by tax bracket)
🧮 Early Withdrawal Calculator
How Much Will You Actually Receive?
* Does not include state tax (varies 0-13.3%). Actual results depend on total annual income.
⚙️ How Early Withdrawal Works
✅ Exceptions to the 10% Penalty
You can avoid the penalty (but still owe income tax) in these situations:
Who qualifies: Left job at age 55 or older (50 for public safety)
Limitation: Only from THAT employer's 401(k), not rolled-over IRAs
Key tip: Don't roll to IRA before using this exception!
Who qualifies: Anyone willing to commit to equal payments
Limitation: Must continue for 5 years OR until 59½ (whichever is longer)
Key tip: Complex calculation—consult a professional
Who qualifies: Unreimbursed medical expenses exceeding 7.5% of AGI
Limitation: Only the amount exceeding 7.5% qualifies
Who qualifies: IRS definition of total and permanent disability
Documentation: Physician certification required
Who qualifies: Alternate payee under Qualified Domestic Relations Order
Key tip: Must be from 401(k), not IRA rollover
Who qualifies: Within 1 year of birth or adoption
Limitation: Up to $5,000 per child
Who qualifies: Called to active duty for 180+ days
Repayment option: Can repay within 2 years of duty end
Who qualifies: Unforeseeable personal emergency
Limitation: Up to $1,000/year, must repay within 3 years for next withdrawal
⚠️ Common Mistakes to Avoid
- Mistake #1: Rolling 401(k) to IRA at age 55+. You lose access to Rule of 55—it doesn't apply to IRAs!
- Mistake #2: Not reporting exceptions on Form 5329. The IRS won't automatically know you qualify.
- Mistake #3: SIMPLE IRA penalty is 25% in first 2 years, not 10%. Much costlier.
- Mistake #4: Confusing Roth contributions (tax-free) with earnings (may have penalty).
❓ Frequently Asked Questions
Typically 30-40% of your withdrawal. Example: $50,000 withdrawal = $5,000 penalty + $11,000 federal tax + $2,500 state tax = only $31,500 received.
10% early withdrawal penalty, plus your regular income tax rate (10-37% federal). SIMPLE IRAs have a 25% penalty in the first 2 years.
Qualify for an exception: Rule of 55 (leave job at 55+), SEPP/72(t) payments, disability, medical expenses over 7.5% AGI, divorce (QDRO), or birth/adoption ($5,000).
Leave your job at age 55+ (50 for public safety) and withdraw from THAT employer's 401(k) penalty-free. Critical: Don't roll to IRA first—you'll lose this exception!
At age 59½ for traditional 401(k)/IRA. Roth contributions can be withdrawn anytime tax and penalty-free (earnings require 5-year rule + 59½).
Roth contributions = always penalty and tax-free. Roth earnings withdrawn before 59½ (and before 5 years) may face the 10% penalty.
✅ Conclusion
Early 401(k) withdrawal before 59½ typically costs 10% penalty plus income tax—potentially 30-40% total. However, 20+ exceptions exist, including Rule of 55, disability, SEPP, medical expenses, and divorce (QDRO). Check if you qualify and report properly on Form 5329.
Disclaimer
This is general information, not financial or tax advice. Retirement account rules are complex. Consult a qualified financial advisor or tax professional before making early withdrawals.