Investment Company and Variable Contracts Products Representative (Series 6)Practice Exam

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What is the penalty for early withdrawal from a qualified retirement plan?

10%
20%
5%
No penalty

The correct answer is: 10%

The penalty for early withdrawal from a qualified retirement plan is typically 10%. This rule applies to most retirement accounts, such as 401(k)s and traditional IRAs, and is designed to discourage individuals from taking money out of their retirement savings before reaching the age of 59½. If an individual withdraws funds from these accounts before this age, they may face this additional 10% tax penalty on the amount withdrawn, in addition to regular income tax. There are certain exceptions to this rule, such as for first-time home purchases or significant medical expenses, but the general penalty stands at 10%. Understanding this aspect of qualified retirement plans is crucial for financial planning and ensuring that individuals take advantage of the tax-deferred growth associated with these accounts for their retirement savings.