What is the penalty for early withdrawal from a retirement account before age 59½?

The penalty for early withdrawal from a retirement account, such as an IRA or 401(k), before the age of 59½ is typically 10%. This penalty is designed to encourage individuals to keep their retirement savings intact until they reach retirement age, thus ensuring that people have sufficient funds when they retire.

This 10% penalty applies in addition to any regular income taxes that may be owed on the withdrawal amount. The early withdrawal penalty is one of the ways the government regulates retirement accounts to promote long-term savings and discourage the use of these funds for immediate needs.

There are certain exceptions to this penalty, such as disability, medical expenses, or purchasing a first home, but in the absence of those circumstances, the standard penalty is 10%. Therefore, recognizing this as the correct answer is important in understanding the fundamentals of retirement savings and the rules that govern them.