What is the penalty for early withdrawal from a 401(k) in addition to the income tax?

The penalty for early withdrawal from a 401(k) plan, in addition to the applicable income tax, is typically set at 10%. This penalty is designed to discourage individuals from accessing their retirement funds before reaching the age of 59½. The rationale behind this penalty is to promote long-term savings and ensure that individuals do not deplete their retirement resources prematurely.

When someone takes an early distribution from their 401(k), they not only have to pay regular income tax on the amount withdrawn but also incur this additional 10% penalty. This structure aims to encourage individuals to retain their savings until they reach retirement age, aligning with the intended purpose of these retirement accounts.

It's important to note that there are specific exceptions where the early withdrawal penalty may not apply, such as in cases of disability, substantial medical expenses, or a court order to give the funds to a divorced spouse. However, for the general scenario of ordinary early withdrawal, the penalty remains firmly at 10%.