A participant who retires early at age 50 and takes a distribution will incur an additional tax. What is the percentage of this additional tax?

When a participant retires early and takes a distribution from their 401(k) plan before reaching the age of 59½, they typically face an additional tax on the amount distributed. This additional tax is a penalty that is imposed to discourage early withdrawals from retirement accounts. The percentage associated with this early withdrawal penalty is 10 percent.

Thus, if a participant retires at age 50 and decides to take a distribution, they will incur a 10 percent additional tax on the amount they withdraw. This tax is applied to ensure individuals do not dip into their retirement savings prematurely, thereby preserving those funds for their intended retirement purpose. Understanding this penalty is crucial for participants as they plan for their retirement and consider their options upon leaving the workforce.