How Much Penalty If I Cash Out My 401K?

Your 401(k) may be subject to taxes or penalties when you get a new job – if you don’t make the right moves. Learn about consolidating and rolling your 401(k) balance into a new 401(k) plan or IRA.

Written by

Richard Barrington

Updated by

Kristin Marino

Last updated: May 30, 2023

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Suppose you don’t want to roll your 401(k) balance into a new retirement plan. What are the tax consequences of cashing out?

The big variable here is your age. If you are under age 59 1/2, it is likely that any distribution from a 401(k) will be subject to a 10 percent penalty, in addition to ordinary income tax consequences.

The ordinary income tax liability depends on the type of 401(k) plan you were in. If it was a traditional 401(k), you will probably owe income taxes on the distribution, even if you are above age 59 1/2. If you are above 59 1/2 and the distribution is coming from a Roth 401(k), there should not be any immediate tax consequences. However, any subsequent investment returns would be subject to taxation.

See how much your retirement savings will be worth after a set number of years: Use our retirement calculator

Ask the expert Q: Should I take money out of 401(k) retirement savings to pay off a mortgage?

About Author

Richard Barrington

Richard Barrington has been a Senior Financial Analyst for MoneyRates. He has appeared on Fox Business News and NPR, and has been quoted by the Wall Street Journal, the New York Times, USA Today, CNBC and many other publications. Richard has over 30 years of experience in financial services. He has earned the Chartered Financial Analyst (CFA) designation from the Association of Investment Management and Research (now the “CFA Institute”).