What is the usual penalty for early withdrawal from a retirement account?

The usual penalty for early withdrawal from a retirement account is 10%. This penalty typically applies to withdrawals made from tax-advantaged accounts such as traditional Individual Retirement Accounts (IRAs) and 401(k) plans before the account holder reaches the age of 59½. The purpose of this penalty is to encourage individuals to preserve their retirement savings.

When funds are withdrawn early from these accounts, the Internal Revenue Service (IRS) imposes this 10% additional tax on the amount withdrawn, in addition to any regular income tax owed on the distribution. There are some exceptions to this rule, such as in cases of permanent disability, certain medical expenses, or college expenses, where the early withdrawal penalty may be waived. However, in general circumstances, a 10% penalty is the standard practice for early withdrawals.