The two hits: penalty plus tax
Withdraw from a traditional IRA or 401(k) before age 59.5 and you generally face two things: a 10% early-withdrawal penalty and ordinary income tax on the taxable amount. On a $20,000 withdrawal in a 22% bracket that's $2,000 penalty plus $4,400 tax — you keep about $13,600. The calculator above shows your own split.
Exceptions that waive the 10%
The penalty (not the tax) is waived in several cases: total and permanent disability, certain medical expenses, a first home ($10,000 lifetime from an IRA), higher-education costs, birth or adoption, and IRS substantially-equal periodic payments. If you qualify, set the penalty to zero in the calculator to see the difference.
The Rule of 55
If you leave your job in or after the year you turn 55, you can take penalty-free withdrawals from that employer's 401(k) (not an IRA). It's one of the cleanest early-access paths for people retiring a little early — the Rule of 55 calculator covers it.
Why it's usually a last resort
Beyond the immediate cost, an early withdrawal permanently removes money that would have compounded for decades — the real price is the growth you never get. Before tapping a retirement account, it's worth checking whether other savings, or a lump sum you already hold, could cover the need instead.
Common questions
Does the penalty apply to Roth contributions? You can withdraw your Roth contributions anytime tax- and penalty-free; the penalty applies to earnings taken early.
Is the penalty on the whole withdrawal? It applies to the taxable portion — for most traditional accounts that's the full amount.
Can I avoid the tax by rolling over? Yes — a direct rollover to another retirement account isn't a withdrawal, so no tax or penalty.