Overview
An early withdrawal penalty is an additional 10% tax imposed by the IRS under IRC Section 72(t) (often called the 72(t) penalty) on distributions taken from tax-deferred retirement accounts, such as Traditional IRAs, 401(k)s, and 403(b)s, before age 59½. This tax applies on top of regular ordinary income taxes and is reported on IRS Form 5329.
How Boldin Handles Early Withdrawal Penalties
To deliver accurate financial projections, Boldin accounts for early withdrawal penalties in plan calculations and modeling tools, including withdrawal sequences and the Roth Conversion Explorer.
Key Features
Automatic calculation and application: Boldin applies a 10% federal penalty to early taxable withdrawals from these accounts: 401(a), 401(k), 403(b), Traditional IRA, and Cash Balance Pensions (when distributed into an after-tax account). Roth conversions from these accounts before age 59½ are also included.
Age cutoff: The penalty applies through age 59 years 6 months and stops at 59 years 7 months. Boldin stores only your birth month, not your birth day, so this cutoff is intentionally conservative. Your projection may show the penalty slightly longer than the IRS would require.
Account settings and customization: You can mark an account exempt from the penalty directly in your plan. The setting is made per account, per scenario, so repeat it in each scenario where it applies.
Where you’ll see it: If applied, “Early Withdrawal Penalty” appears under Insights > Taxes > Estimated Taxes. It’s included in the estimated tax payments expense and in Lifetime Tax figures throughout the planner, including the Roth Conversion Explorer summary results page.
How to Access Account Penalty Settings
Go to Assets and Debts in your Boldin navigation menu.
Select the specific account (e.g., Traditional IRA or 401(k)).
Toggle the early withdrawal penalty setting to indicate whether distributions from this account should trigger the penalty.
Repeat for each account and each scenario where you want the setting to apply.
Account Type Exception
Governmental and tax-exempt 457(b) plans: 457(b) accounts aren’t subject to the penalty in Boldin.
IRS Exception Rules
Boldin doesn’t detect exceptions automatically. If you qualify, mark the account exempt yourself.
Rule of 55: Allows penalty-free distributions from your current employer’s 401(k) or 403(b) if you separate from service during or after the calendar year you turn 55.
Rule 72(t) / SEPP (Substantially Equal Periodic Payments): Allows scheduled, recurring distributions without the 10% penalty.
Other IRS exceptions:
Total and permanent disability
Qualified disaster distributions
Qualified active-duty reservist distributions
Unreimbursed medical expenses exceeding 10% of Adjusted Gross Income (AGI)
Distributions made to satisfy IRS tax levies
Frequently Asked Questions
Why does my plan show tax penalties on early Roth conversions?
If you model a Roth conversion before age 59½, Boldin applies the 10% early withdrawal penalty when the funds come from a penalty-eligible account (see the list above).
How can I remove the penalty if I qualify for an exception?
If you qualify for an IRS exception such as the Rule of 55 or a 72(t) SEPP schedule, mark that account exempt under Assets and Debts. Do this for each account and each scenario where the exception applies.
How does Boldin apply the penalty after the first spouse dies?
Boldin assumes the first spouse’s pre-tax accounts roll over to the surviving spouse. Later withdrawals are tested against the survivor’s age. This can matter for couples with a large age gap.
Why does my plan still show a penalty in the month I turn 59½?
Boldin stores only your birth month, so it uses a conservative cutoff. The penalty applies through age 59 years 6 months and stops at 59 years 7 months.