What is the penalty for early withdrawal from a traditional IRA?

What is the penalty for early withdrawal from a traditional IRA?

• A. No penalty
• B. 5% additional tax
• C. 10% additional tax
• D. 15% additional tax

Answer: (C)

When a taxpayer withdraws funds from a traditional IRA before reaching the age of 59½, they typically incur an additional tax penalty of 10% on the amount withdrawn. This is designed to discourage early access to retirement funds and encourage individuals to save for retirement. The 10% penalty applies unless the withdrawal meets certain exceptions, such as for first-time home purchases, qualified education expenses, or certain medical expenses. Understanding this penalty is crucial for individuals managing their retirement savings, as it emphasizes the importance of keeping funds in the account until retirement age unless necessary. The other options do not accurately represent the standard penalty associated with early withdrawals from traditional IRAs.

When a taxpayer withdraws funds from a traditional IRA before reaching the age of 59½, they typically incur an additional tax penalty of 10% on the amount withdrawn. This is designed to discourage early access to retirement funds and encourage individuals to save for retirement. The 10% penalty applies unless the withdrawal meets certain exceptions, such as for first-time home purchases, qualified education expenses, or certain medical expenses.

Understanding this penalty is crucial for individuals managing their retirement savings, as it emphasizes the importance of keeping funds in the account until retirement age unless necessary. The other options do not accurately represent the standard penalty associated with early withdrawals from traditional IRAs.