Final answer:
A premature distribution from an MEC incurs a 10% penalty tax if taken before the age of 59 1/2, similar to early withdrawals from an IRA or 401(k), with exceptions for cases like disability or long-term care expenses.
Step-by-step explanation:
A "premature" distribution from a Modified Endowment Contract (MEC) incurs a 10% penalty tax on the gains portion of the withdrawal if taken before the age of 59 1/2. This is similar to the penalty for early withdrawals from an IRA or a 401(k), as the MEC is considered a form of a tax-deferred investment vehicle. However, there are certain exceptions to this penalty, such as distributions made due to disability or for paying long-term care expenses. Understanding these rules is crucial for financial planning and avoiding unnecessary penalties.