Early Withdraw Penalty is a penalty tax charged to an investor for withdrawing money from a qualified retirement plan prior to age 591/2, usually 10% on top of ordinary income taxes.
Investors who remove money from an IRA, Keogh or in some cases an annuity who are under the age of 59 1/2 will be subject to penalty taxes on the amount withdrawn from the account. The IRS wants the money placed in the account to be used by the investor during their retirement and as such penalizes investors who make early withdrawals.
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