What does cashing out my 401(k) cost?
Cashing out $20,000 keeps $12,600 once taxes and the penalty are settled. Left invested at 7.00% APY (6.78% APR) until 65, it could be worth $62,723 in today's dollars.
Example: age 35, 22% federal and 5% state tax, retiring at 65.
Use your own numbersAPR vs. APY: why the same rate has two numbers
APR (definition, opens in a new tab) (annual percentage rate) is the yearly rate before compounding (definition, opens in a new tab).APY (definition, opens in a new tab) (annual percentage yield) is what you actually pay or earn in a year once interest (definition, opens in a new tab) starts charging, or earning, interest of its own.
Lenders quote APR because it's the smaller number. Banks quote savings in APY because it's the bigger one. A 9.00% APR car loan charged monthly costs 9.38% a year. A 24.00% APR card charged daily costs 27.11%. A 5.00% APY savings account is a 4.89% APR.
To compare any two rates fairly, put them in the same unit. "Show rates as" switches every rate on the page; the results don't change, because the rate underneath doesn't.
| Kind of rate | Quoted as | How it's applied |
|---|---|---|
| Car, mortgage and personal loans | APR | APR ÷ 12, each month |
| Credit cards | APR | APR ÷ 365, each day, compounded |
| Savings | APY | Monthly, from the APY |
| Investment returns | Yearly (APY basis) | Monthly: (1 + rate)1/12 − 1 |
A loan's APR can include some fees as well as interest, so turning it into an APY here covers interest only. Inflation (definition, opens in a new tab) is always a plain yearly rate.
What should I check before cashing out my 401(k)?
A cash-out has 20% withheld (definition, opens in a new tab) for federal tax, and a hardship withdrawal (definition, opens in a new tab) 10% by default, so the deposit looks like most of the money. The real bill comes at tax time: income tax at your own rates, plus a 10% penalty before age 59½. Three questions show what reaches the bank and what it would have become.
How much of it reaches the bank, and how much is due later?
What's withheld (20% on a cash-out, 10% by default on a hardship withdrawal) is a down payment on the tax, not the whole bill. Income tax at your own rate plus the 10% penalty is often more, and the rest is due when taxes are filed.
Is there another way to reach the money?
Some plans offer a loan paid back from each paycheck, or an emergency withdrawal of up to $1,000 a year with no penalty. Leaving a job, a direct rollover (definition, opens in a new tab) moves the money to a new plan or an IRA with no tax. The plan administrator can say which options exist.
What would this money become if it stayed?
A 401(k) is money that compounds for you, untaxed until it comes out. The years between now and retirement are the part of compounding that can't be bought back later.
Quick guess
Cash out $20,000 at age 35, with22% federal and 5% state tax. After taxes and the penalty, how much is kept?
Using the numbers in the calculator below.
How much of my 401(k) do I actually keep if I cash it out?
Pick a cash-out or a hardship withdrawal, then enter the amount, your age and your tax rates. You'll see what's withheld on the day, what's owed or refunded at tax time, and what's left once it's settled. Then you'll see what the same money could grow to by retirement if it stayed invested, in today's dollars (definition, opens in a new tab).
Kept after taxes and penalty
$12,600
- Cashed out
- $20,000
- Lost to tax
- 37%
- Each $1,000 kept
- $1,587
The 10% early withdrawal penalty applies (under age 59½).
| Withdrawn | |
|---|---|
| Withheld for federal tax (20%) | |
| Deposited on the day | |
| Federal income tax | |
| State income tax | |
| Early withdrawal penalty | |
| Owed at tax time | |
| Kept once taxes are filed |
- Left invested, at 65
- $62,723
- Cash kept, at 65
- $5,191
In today's dollars. Money left invested is taxed when it comes out in retirement.
See the year-by-year table
| Age | Left in the 401(k) | Cash kept |
|---|
Show the math
- Withheld: on a cash-out, 20% of the withdrawal, which the plan must hold back for federal tax when the money is paid to you rather than rolled over. A hardship withdrawal can't be rolled over, so that rule doesn't apply; the plan withholds 10% unless a different rate is picked on Form W-4R.
- The real bill: withdrawal × (federal rate + state rate), plus 10% if you're under 59½ and no exception applies. Owed at tax time = the real bill − what was withheld. A negative number comes back as a refund.
- Kept = withdrawal − the real bill.
- Left invested: withdrawal × (1 + yearly return)years, applied monthly, then divided by (1 + inflation)years to show it in today's dollars. Cash kept is divided by inflation the same way.
- "After tax" at retirement uses today's federal and state rates with no penalty. Tax rates in retirement could be higher or lower.
- Not included: the withdrawal pushing part of it into a higher bracket, any employer match given up, state withholding, plan fees, and Roth 401(k) rules.
What does cashing out cost after 1 year and 5 years?
Cash kept after taxes starts smaller than the account balance and then loses buying power to rising prices. Money left in the 401(k) keeps compounding, untaxed until it comes out. After one year the gap is mostly the tax and penalty. After five, growth has widened it, and it keeps widening until retirement.
After 1 year
| Choice | Worth, today's dollars |
|---|---|
| Left in the 401(k) | |
| Cash kept after taxes |
After 5 years
| Choice | Worth, today's dollars |
|---|---|
| Left in the 401(k) | |
| Cash kept after taxes |
A 401(k) sits in the bucket that compounds for you. Cashed out and left idle, it moves to the one that shrinks on its own.
What can I ask my plan administrator or HR before cashing out?
The plan's paperwork leads with the cash-out form because it's the simplest path to process. A plan can often offer more than one way to reach the money: a loan, a direct rollover, or an exception to the penalty. These questions put each option, and what it costs, on the table before signing.
Plan administrator
“Can this be a direct rollover to my new employer’s plan or to an IRA instead of a check to me?”
In a direct rollover the money moves between accounts. Nothing is withheld and no tax is due, so the full balance keeps growing.
Plan administrator or HR
“Does the plan offer loans? What’s the rate, and what happens to the loan if I leave my job?”
A 401(k) loan is paid back to the account, usually from each paycheck, with no tax or penalty while it’s repaid on schedule. Plans aren’t required to offer loans, and the IRS caps how much can be borrowed. An unpaid loan can become a taxable withdrawal.
Plan administrator or HR
“Does the plan offer an emergency withdrawal of up to $1,000, or a loan, instead of a hardship withdrawal?”
A hardship withdrawal can't be paid back or rolled over, so it shrinks the account for good. The IRS lets one emergency personal expense withdrawal a year, up to $1,000, skip the 10% penalty, when the plan offers it.
Plan administrator or a tax preparer
“Does any exception to the 10% early withdrawal penalty (definition, opens in a new tab) apply to me?”
The IRS lists exceptions. One example: leaving the employer in or after the year of turning 55 can remove the penalty on that employer’s 401(k), though income tax still applies.
Plan administrator
“How much of my balance is vested (definition, opens in a new tab)?”
Money taken from paychecks is always yours. An employer match may vest over time, and only the vested part can be paid out.
Plan administrator
“Can you withhold more so I don’t owe a lump sum at tax time?”
When income tax plus the penalty is more than what's withheld, the difference is due when taxes are filed. Form W-4R sets a higher rate (for a hardship withdrawal, any rate). Withholding more shrinks the deposit but avoids that surprise.
Sources
- IRS, Topic no. 413, Rollovers from retirement plans. A plan must withhold federal income tax, generally 20%, from an eligible rollover distribution paid to the participant. A direct rollover avoids it, and Form W-4R can ask for more.
- IRS, Topic no. 558, Additional tax on early distributions from retirement plans other than IRAs. Distributions taken before age 59½ generally owe an additional 10% tax on the taxable part, on top of regular income tax, unless an exception applies.
- IRS, Retirement topics: exceptions to tax on early distributions. Lists the exceptions to the 10% additional tax, including leaving the employer in or after the year of turning 55 (401(k)s and other qualified plans, not IRAs).
- IRS, Retirement topics: hardship distributions. Plans may, but don’t have to, allow hardship withdrawals, limited to the amount needed for an immediate and heavy financial need. They’re taxed as income, may owe the 10% additional tax, and can’t be repaid or rolled over.
- IRS, Form W-4R (2026), Withholding Certificate for Nonperiodic Payments and Eligible Rollover Distributions. Hardship withdrawals aren’t eligible rollover distributions for withholding. As nonperiodic payments, the default withholding is 10%, and the participant can choose any rate from 0% to 100%.
- IRS, Retirement topics: exceptions to tax on early distributions (emergency personal expense). One distribution a calendar year for personal or family emergency expenses, up to $1,000, is exempt from the 10% additional tax.
- IRS, Retirement plans FAQs regarding loans. Plans aren’t required to offer loans. When they do, the most is the greater of $10,000 or half the vested balance, capped at $50,000, generally repaid within five years.
Educational only, not financial or tax advice. The numbers are estimates based on the rates you enter; your actual tax depends on your whole return. Investment returns aren't guaranteed.