No, you cannot use a capital loss to offset a retirement distribution or the early withdrawal penalty.
Distributions from a retirement account are considered ordinary income, not a capital gain. Capital losses can only offset $3,000 per year of ordinary income.
The early withdrawal penalty is separate and in addition to the tax you would pay on the ordinary income of the taxable distribution. If you do not qualify for any exemptions, it is for 10% of the taxable income.
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