401(k) rollover vs cash out

See what cashing out really costs: the tax, the penalty, and the growth you'd give up.

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Your 401(k)

Under 59½ means a 10% early-withdrawal penalty on top of income tax.

Your tax rate

Used to find your federal marginal bracket: a cash-out is taxed as ordinary income.

Derived federal marginal rate: 10.0%

If you roll it over instead

A long-run market average is often cited around 7%. Adjust to your own assumption.

Enter your 401(k) balance above to compare cashing out against rolling it over. Nothing is sent anywhere. It all stays in your browser.

How this works

Enter your 401(k) balance and age. A cash-out is taxed as ordinary income, so we use your other taxable income and filing status to find your federal marginal rate, then add your state rate. If you're under 59½ we add the 10% early-withdrawal penalty. What's left is your net cash today. For the rollover side, we grow the same balance at your assumed annual return over your years to retirement (tax-deferred) to show what the money could be worth if you leave it invested.

Why people underestimate the cost

  • The penalty is on top of tax. Under 59½, the 10% penalty is separate from the income tax you already owe on the withdrawal.
  • It's taxed as ordinary income. A large cash-out can even push part of the distribution into a higher bracket than your day-to-day rate.
  • The lost growth dwarfs the rest. Decades of tax-deferred compounding are the real cost, often several times the balance you cash out today.

Frequently asked questions

What does cashing out my 401(k) early actually cost?
Three things stack up. The distribution is taxed as ordinary income at your federal marginal rate plus any state income tax. If you're under 59½, there's usually an extra 10% early-withdrawal penalty on top. And because the money is no longer invested, you give up every dollar of tax-deferred growth it would have earned between now and retirement, often the largest cost of all.
What is the 10% early-withdrawal penalty?
If you take money out of a 401(k) before age 59½, the IRS generally adds a 10% penalty on the amount withdrawn, separate from the income tax you already owe. A handful of exceptions exist, but for most people who cash out after quitting, the penalty applies. This calculator includes it whenever the age you enter is under 59½.
What's the difference between a direct and an indirect rollover?
In a direct rollover the money moves straight from your old plan to an IRA or new 401(k) and is never taxed. In an indirect rollover the plan pays you, often withholding 20%, and you have 60 days to deposit the full amount into a new account, or the shortfall is treated as a taxable distribution (and may trigger the penalty). Direct rollovers avoid that trap.
Why do people underestimate the cost of cashing out?
The tax and penalty are visible and painful, but they're only part of it. The bigger, invisible cost is decades of compounding you forfeit. A balance left to grow tax-deferred can multiply several times over before retirement, so the 'foregone growth' line is usually far larger than the up-front hit.