The 401K tax penalty for early cash out is 10 percent of the amount of the distribution, which is in addition to the full amount of the regular income tax on the cash out. However, there are a number of exceptions that preclude the collection of the 10 percent penalty.Know More
A 401K retirement account holder under the age of 55 must pay the 10 percent penalty when cashing out the account. However, the penalty is waived if the account holder becomes completely disabled, dies, has a substantial medical expense, must use the money to pay alimony or child support, or has a levy on the 401K account from the IRS. Military reservists called to extended active duty can also cash out 401K accounts without penalty. Another tax drawback of cashing out a 401K account early is that the extra income may put account holders into a higher tax bracket, making them subject to a higher income tax payment.
Instead of cashing out the account, 401K account holders can borrow up to $50,000 or half of the account's balance and pay it back with interest over five years without incurring the 10 percent penalty. Account holders can also opt for a series of substantially equal periodic payments over their expected lifetimes as long as they are no longer working for the employers maintaining the plans before payments begin.Learn more about Financial Planning
If the individual wishing to withdraw from an IRA is under the age of 59 1/2 and does not want to face a 10 percent tax penalty, the withdrawal must go toward a major expense, such as college tuition, says CNN Money. The individual can also withdraw a former contribution.Full Answer >
In order to qualify for a 401(k) withdrawal, the drawer must be at least 59 1/2 years old to avoid a 10 percent tax penalty, according to Bank on Yourself. The tax penalty may be waived under certain circumstances, says About.com.Full Answer >
Account holders calculate taxes and penalties for early withdrawals from traditional IRA accounts by adding standard income tax plus a 10 percent penalty tax for the amount of the withdrawal, reports the IRS. The 10 percent penalty tax is waived if the withdrawal qualifies as an exception.Full Answer >
When a taxpayer cashes out a Traditional or Roth Individual Retirement Account before reaching age 59 1/2, the income is subject to both income tax and a 10 percent early distribution penalty. SIMPLE IRAs may have a 25 percent penalty assessed, according to IRS Publication 590.Full Answer >