“One of the practical risks of accessing retirement funds early is the extra cost that can arise: ordinary income tax plus an early-withdrawal penalty. Most employer-sponsored plans and IRAs treat distributions taken before a commonly used retirement-age threshold as potentially subject to both income tax (if the money was pre-tax) and an additional penalty intended to discourage using retirement savings for current consumption. There are important exceptions and rule-based workarounds — certain hardship provisions, substantially equal periodic payments, disability, or separation-from-service exceptions in some cases — but those carve-outs are specific and should be checked against plan rules. Conceptually, the takeaway is simple: taking money out early often causes tax and penalty costs, whereas rollovers and leaving funds invested usually avoid those immediate costs. The question below asks which action is most likely to trigger that early-withdrawal penalty in a typical scenario.”