Retirement and Social Security
Definition
A 10% additional tax on most retirement account withdrawals taken before age 59 1/2, on top of regular income tax.
What it means
If you take money out of an IRA or workplace retirement plan before age 59 1/2, the taxable part is generally subject to a 10% additional tax as well as income tax. The IRS lists many exceptions. Examples include total and permanent disability, certain unreimbursed medical expenses, a series of substantially equal periodic payments, up to $10,000 from an IRA for a first home, qualified higher education expenses from an IRA, birth or adoption expenses up to $5,000, one emergency personal expense distribution of up to $1,000 a year, and leaving a job in or after the year you turn 55 for that employer's plan. Some exceptions apply only to IRAs and others only to workplace plans. Roth IRA contributions can be withdrawn at any time without this tax.
Example
A 40-year-old in the 22% bracket who withdraws $10,000 from a 401(k) with no exception owes about $2,200 of federal income tax plus a $1,000 additional tax, keeping about $6,800 before state tax.
Illustrative numbers only. Your situation will differ.