How Much Will I Get if I Cash Out My 401K Calculator? [2024]

A 401K plan is a qualified defined contribution retirement savings plan sponsored by employers to help employees save and invest for retirement. 401K plans allow employees to contribute a portion of their salary on a pre-tax basis to an investment account.

Many employers also match employee contributions up to a certain percentage. Over the years, these contributions and investment earnings can add up to be a significant sum in the 401K account that can provide income during retirement.

However, sometimes people consider cashing out their 401K savings before retirement age for various reasons – medical emergency, higher education, home purchase, or starting a business.

Cashing out means you take a distribution and are paid the vested balance of your 401K account in a lump sum. But this early withdrawal comes with consequences you need to fully understand.

In this article, we provide a detailed overview of the key things to know before cashing out your 401K to help you make an informed decision. We also provide a 401K early withdrawal calculator to estimate how much you can expect to receive if you withdraw early.

Consequences of Early 401K Withdrawal

Here are some key drawbacks and penalties involved with early 401K withdrawals:

  • Income Tax: 401K contributions were made on a pre-tax basis. So you will have to pay federal and state income tax on the amount withdrawn at your current income tax rate. For large withdrawals, this income tax percentage could be 25-35% of the amount cashed out.
  • 10% Early Withdrawal Penalty: The IRS imposes a 10% early withdrawal penalty if you are below 59 1⁄2 years old when you take the 401K distribution. This penalty is applied on top of regular income taxes. There are a few exceptions when this penalty doesn’t apply such as permanent disability, certain medical expenses or separation from service after age 55.
  • Loss of Future Investment Returns: When you cash out your 401K early, you lose out on all the future compounded investment returns that money could have earned over the next few decades until retirement age. The younger you are, the greater this long-term loss.
  • No Payback Option: Once you have cashed out your 401K, you cannot put the money back later to regain the retirement savings benefits. The only way is to contribute going forward to rebuild retirement savings.

401k Early Withdrawal Calculator

Determining the actual cash you will get from your 401K if you decide on early withdrawal is important in your planning process. The amount will depend on four key factors:

  1. Current Total Vesting Balance in your 401K account
  2. Income Tax Rate you expect to pay
  3. If 10% early withdrawal penalty applies or not
  4. Any 401K loan balance that maybe outstanding

Here are the step-by-step details on how the 401K early withdrawal calculator works with examples at each stage:

Stage 1) Determine Total 401K Vesting Balance

The balance that you are entitled to under your company’s vesting schedule based on years of service. This does not include any company matching contributions not yet fully vested.

For example: Todd has a current 401K balance of $98,000. But his employer matching portion is only 80% vested currently based on his 5 years of service.

So his total vesting balance is:

  • Employee Contributions: $80,000
  • Vested Employer Contributions: 80% * $18,000 = $14,400
  • Total Vesting 401K Balance: $80,000 + $14,400 = $94,400

Stage 2) Factor in Income Taxes on Withdrawal

You have to pay federal and state income taxes on the 401K money withdrawn at your tax rates.

Continuing the example:

Todd is married filing jointly and expects 25% marginal federal tax rate plus 6% state tax based on his income level when he files his next tax return.

So his estimated income tax on $94,400 withdrawal will be:

  • Federal Tax = 25% of $94,400 = $23,600
  • State Tax = 6% of $94,400 = $5,664
  • Total Income Tax = $23,600 + $5,664 = $29,264

Stage 3) Account for 10% Early Withdrawal Penalty

If Todd is below 59 1⁄2 years when he takes the money out, he has to pay a 10% ($9,440) penalty in addition to regular income taxes per IRS rules.

Stage 4) Subtract Outstanding 401K Loans

Account for any outstanding 401K loan balance you may have because that portion is no longer available when leaving the employer.

If Todd has an outstanding 401K loan of $18,000, only the remaining balance can be withdrawn.

Stage 5) Final Amount Received from Early 401K Withdrawal

Putting together all the elements we can determine how much Todd will actually get in hand if he decides to cash out his 401K now:

  • 401K Vesting Balance $94,400
  • Income Tax (25% + 6%) $29,264
  • 10% Early Withdrawal Penalty $9,440
  • Outstanding 401K Loan $18,000
  • Final Cash from Early Withdrawal $37,696

So Todd would get approximately $37,696 out of his $98,000 total 401K balance based on his personal scenario. Let’s use an online 401K withdrawal calculator to validate this manual estimate.

401K Withdrawal Calculator Analysis

Now let’s analyze Todd’s situation step-by-step using an online 401K early withdrawal calculator:

  • Step 1) Enter Total Current 401K Balance: Todd enters his current total 401K balance of $98,000 in the calculator first
  • Step 2) Input Vested Portion: Todd inputs only his vested portions of $80,000 employee contributions + $14,400 vested match = $94,400
  • Step 3) Provide Age: He enters his current age of 40 years
  • Step 4) Estimate Taxes: He inputs 25% + 6% = 31% tax rate based on his income estimate
  • Step 5) Select if Penalty Applies: As Todd is under 59 1⁄2, he checks the 10% early withdrawal penalty option
  • Step 6) Account for Outstanding Loan: He inputs the $18,000 outstanding 401K loan that will be automatically defaulted.
  • Step 7) View Results: The 401K withdrawal calculator outputs a net amount of $37,636 that Todd would get if he cashes out today.

The calculator amounts match closely with our manual calculations. Now Todd has a clear sense of the impact of 401K early withdrawal penalties and taxes.

How to Minimize Taxes and Penalties

If you have decided you need to take an early 401K withdrawal due to an urgent financial need, here are a few tips to reduce potential taxes and penalties:

  • Keep the withdrawal amount to the minimum possible that meets your pressing need. The lower the amount, the lower the taxes and penalty.
  • Consider a 401K loan instead. If your plan allows, a 401K loan is not taxed or penalized if following the loan rules and you pay yourself interest. But you need to be able to repay the loan.
  • See if you qualify for an exception to the 10% early withdrawal penalty due to a qualifying reason like higher education or major medical expenses.
  • Time the withdrawal in a year you expect lower income. For example, if changing jobs results in lower income for the year. Lower income tax rates apply to reduce the double taxation impact.

Strategies to Rebuild Retirement Savings

Cashing out a 401K early can set your retirement savings back by many years. Here are some strategies to rebuild a retirement fund after a 401K withdrawal:

  • Tighten your household budget – Cut non-essential expenses for a few years to generate extra savings that can be directed to retirement accounts. Develop and follow a written monthly budget plan.
  • Increase your 401k contribution rate – If you have a new job after you left your previous company, try to contribute at least 10-15% of your salary into the retirement plan to get back on track. Contribute more as the budget allows.
  • Open and fund a Roth IRA – Even if you participate in a new employer 401K, having a Roth IRA can supplement your savings. Take advantage of automatic monthly transfers from your checking account into the Roth IRA.
  • Receive employer 401K matching funds – Making contributions to your new employer’s 401K plan allows you to receive any matching they provide as ‘free money’. This builds your savings faster.
  • Consider retirement account consolidations – Consolidate old 401Ks and simplify by rolling them over into your current employer 401K or rollover IRA to have a unified investment strategy.

Following these best practices consistently over time will help you rebuild retirement savings strategically even if you had to dip into your 401K temporarily due to special situation.

Key Takeaways

Here are some closing key considerations when deciding to cash out a 401K before retirement age:

  • Fully understand the income taxes and 10% early withdrawal penalty involved with 401K withdrawals before age 59 1⁄2 unless an exception applies. A 401K withdrawal calculator helps estimate the amount you will actually receive.
  • Weigh if tapping 401K savings now is absolutely essential given the long-term costs of losing decades of potential tax-deferred investment growth. See if other financing options are available first.
  • Have a plan to start rebuilding retirement savings quickly again by increasing contribution rates after withdrawal. Consider retirement account consolidations.
  • Aim to keep withdrawal amounts to the absolute minimum needed for the purpose. Avoid tapping retirement accounts for discretionary splurges.

Planning carefully when facing the decision to access 401K money before retirement is key. Use the 401K withdrawal calculator and strategies in this comprehensive guide to make the most informed choice for your long-term financial health.

FAQs Related to Cashing out a 401K Early:

What are the taxes on a 401K withdrawal if I cash out early?

You have to pay regular federal and state income taxes on the amount withdrawn at your current tax rates. If you are under 59 1⁄2, you also owe a 10% early withdrawal penalty on the taxable portion paid to IRS.

Can I take money out of my 401K without getting penalized?

You can avoid the 10% early withdrawal penalty under certain circumstances like reaching age 59 1⁄2, permanent disability, certain unreimbursed medical bills, or separating from service after age 55.

What percentage of 401K will I lose if I cash out early?

The amount lost is much more than just taxes and penalties. By cashing out early, you lose out on all the future compounded investment returns that your 401K savings could have earned over the next few decades until actual retirement age. This lost opportunity cost could be 20-50% or more of your nest egg.

Can I withdraw all the money from my 401K account?

Yes, you can take a distribution of your entire 401K vested account balance when leaving a job. But this should be avoided because you lose the future tax-deferred growth and pay income taxes and penalties that could take out 25-40% of the amount.

What documents are required to withdraw 401K funds?

You need to fill out the 401K Distribution Request Form from your plan administrator. You may need to provide copies of documents if taking a hardship withdrawal. The plan administrator will require tax withholding forms like Form W-4P.

Can I return money to my 401K once I take it out early?

No, once you withdraw 401K money before retirement, you cannot put it back later to get the tax benefits. You permanently lose that tax-deferred retirement money. Going forward, you will need to fund your retirement accounts to rebuild.