How Much Penalty If I Cash Out My 401K?
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.
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Ask the expert Q: Should I take money out of 401(k) retirement savings to pay off a mortgage?
