An early withdrawal penalty is a fine charged to individuals who withdraw funds from a retirement account prior to official retirement. According to IRS rules, funds may grow in a retirement account without cost of income taxes up until retirement. However, if an individual withdraws funds prior to retirement, he or she may be heavily taxed for doing so. Under some laws, taxes at the rate of 7.5 percent or higher are levied on the withdrawn funds. This fee is paid immediately from the withdrawal, generally by the retirement account management. This early withdrawal penalty is only levied on withdrawals that are not otherwise approved.