2 years ago
Last edited at 4:46AM on 11/2/2011
If you are under retirement age you will pay income taxes on the amount of the early distribution of your 401K plus a 10% penalty for the withdrawal. The IRS encourages people to save for their retirement by allowing a current exclusion of tax on what you put into your 401K, you pay no taxes when you put it in, it gets taxed when you retire. The 10% early withdrawal penalty is there to discourage people from tapping into their retirement account before they actually retire.