What can an employee expect if they withdraw from their 401(k) plan before reaching the age of 59½?

When an employee decides to withdraw funds from their 401(k) plan before reaching the age of 59½, they are typically subject to specific rules based on IRS regulations. If the withdrawal is made before this age threshold, the employee can expect to incur income taxes on the amount withdrawn as it is considered taxable income. In addition to income taxes, they may face a 10% early withdrawal penalty, which is designed to discourage individuals from accessing retirement funds prematurely.

This combination of taxes and penalties is intended to encourage long-term savings for retirement and discourage withdrawals that could jeopardize future financial security. Thus, the correct understanding is that any early withdrawal will likely lead to both income tax liability and a penalty, reinforcing the idea that 401(k) plans are primarily intended for long-term retirement savings.

Each of the other choices fails to acknowledge either the income tax, the penalty, or both, which does not align with the established IRS guidelines regarding early withdrawals from retirement accounts.