DEFINITION of 'Withdrawal Penalty'

Refers to any penalty incurred by an individual for early withdrawal from an account that is either "locked in" for a stated period, as in a time deposit at a financial institution, or where such withdrawals are subject to penalties by law, such as from an IRA. The penalty can be either in the form of forfeiture of interest or an actual dollar amount.

BREAKING DOWN 'Withdrawal Penalty'

For example, an early withdrawal from a certificate of deposit at most financial institutions would result in the customer forfeiting interest for a period ranging from one month to several months. Generally speaking, the longer the term of the initial certificate of deposit, the longer the interest forfeiture period. In the case of IRAs, withdrawals before the age of 59.5 are subject to a penalty of 10%.

RELATED TERMS
  1. Withdrawal

    Removing funds from an account, plan, pension or trust. In some ...
  2. Qualified Reservist

    A member of the military reserve who is not actively serving ...
  3. Term Deposit

    A deposit held at a financial institution that has a fixed term, ...
  4. Early Withdrawal

    The removal of funds from a fixed-term investment before the ...
  5. Demand Deposit

    Funds held in an account from which deposited funds can be withdrawn ...
  6. Substantially Equal Periodic Payment ...

    A plan that allows individuals who have invested in an IRA or ...
Related Articles
  1. Retirement

    Your 401(k): Not the Best Emergency Fund

    If you have an emergency and need to access your retirement funds, you may have to pay a penalty if you dip into your 401(k). But there is a better option.
  2. Retirement

    What's the Tax Hit on an IRA Withdrawal?

    How much taxes you'll pay on IRA withdrawals depends on a variety of factors. Use this guide to plan ahead.
  3. Taxes

    How 401(k) Withdrawals Work When You're Unemployed

    Unemployed individuals can pursue several options when taking money out of their 401(k), but they should carefully weigh taxes and possible penalties
  4. Retirement

    When a 401(k) Hardship Withdrawal Makes Sense

    If you've exhausted all other avenues, there are ways to withdraw funds before age 59½ – sometimes without the 10% penalty that's usually due.
  5. Retirement

    Tapping Retirement Funds Early – Without a Penalty

    The IRS offers several ways to skirt the 10% penalty on early retirement distributions.
  6. Retirement

    Don't Spend Your Retirement-Fund Cash This Way

    Before you cash out or raid one of your retirement funds, consider the following things you should not do with that money.
  7. Retirement

    Avoiding IRS Penalties On Your IRA Assets

    The best way to avoid additional charges and taxes is to know which transactions have expensive consequences.
  8. Retirement

    When Can You Use Your IRA to Buy a House?

    If you're a first-time homebuyer (a term that's defined more flexibly than you think), you can tap your IRA to help with the costs of your purchase.
RELATED FAQS
  1. When can I withdraw my IRA money?

    Managing an individual retirement account can be tricky. Find out when you can withdraw IRA money without incurring a 10 ... Read Answer >>
  2. How do you calculate penalties on an IRA or Roth IRA early withdrawal?

    Find out how to calculate the tax penalty on early IRA distributions, including why distributions from Roth accounts can ... Read Answer >>
Hot Definitions
  1. Profitability Index

    An index that attempts to identify the relationship between the costs and benefits of a proposed project through the use ...
  2. Restricted Stock Unit

    Compensation offered by an employer to an employee in the form of company stock. The employee does not receive the stock ...
  3. Operating Ratio

    A ratio that shows the efficiency of a company's management by comparing operating expense to net sales. Calculated as:
  4. Expense Ratio

    A measure of what it costs an investment company to operate a mutual fund. An expense ratio is determined through an annual ...
  5. Pro Forma

    A Latin term meaning "for the sake of form". In the investing world, it describes a method of calculating financial results ...
  6. Trumpcare

    The American Health Care Act, also known as Trumpcare and Ryancare, is the Republican proposal to replace Obamacare.
Trading Center