The penalty for withdrawing funds early from a 401(k) plan-meaning before age 59½-is generally an additional 10% tax on the amount withdrawn. This penalty is on top of the regular income tax you owe on the distribution, since traditional 401(k) contributions are made pre-tax and withdrawals are taxed as income

. There are exceptions where the 10% penalty does not apply, such as:

• Total and permanent disability
• Unreimbursed medical expenses exceeding 7.5% of adjusted gross income
• Separation from employment at age 55 or older (age 50 for certain public safety employees)
• Certain hardship withdrawals (though these often still incur the penalty unless qualifying for other exceptions)
• IRS levy on the plan
• Active military duty
• Financial emergencies or federally declared disasters (with limits)
• Terminal illness diagnosis
• Other specific life events as defined by the IRS

If you do not qualify for an exemption, the 10% penalty applies in addition to income tax on the withdrawn amount. For example, if you withdraw $10,000 early and are in the 22% tax bracket, you could owe $2,200 in income tax plus a $1,000 penalty, totaling $3,200 in taxes and penalties

. Once you reach age 59½, you can withdraw from your 401(k) without the 10% early withdrawal penalty, but ordinary income taxes still apply on traditional 401(k) distributions. Roth 401(k) withdrawals may be tax and penalty-free if certain conditions are met (account held for at least five years and age 59½ or older)

. In summary:

• Early withdrawal penalty: 10% of the amount withdrawn
• Income tax: Ordinary income tax on the withdrawal amount (for traditional 401(k))
• Age for penalty-free withdrawal: 59½ years old (with exceptions)
• Exceptions: Disability, medical expenses, separation from service after 55, certain hardships, etc.

Taking an early withdrawal also reduces your retirement savings and potential compounding growth, which can significantly impact your long-term retirement income