401k Cash Out Calculator Fidelity

401(k) Cash Out Calculator

function calculate401kCashOut() { var current401kBalance = parseFloat(document.getElementById('current401kBalance').value); var age = parseFloat(document.getElementById('age').value); var federalTaxBracket = parseFloat(document.getElementById('federalTaxBracket').value); var stateTaxRate = parseFloat(document.getElementById('stateTaxRate').value); if (isNaN(current401kBalance) || current401kBalance < 0) { alert('Please enter a valid current 401(k) balance.'); return; } if (isNaN(age) || age < 0) { alert('Please enter a valid age.'); return; } if (isNaN(federalTaxBracket) || federalTaxBracket 100) { alert('Please enter a valid federal tax bracket (0-100%).'); return; } if (isNaN(stateTaxRate) || stateTaxRate 100) { alert('Please enter a valid state tax rate (0-100%).'); return; } var grossWithdrawal = current401kBalance; var federalTax = grossWithdrawal * (federalTaxBracket / 100); var stateTax = grossWithdrawal * (stateTaxRate / 100); var earlyWithdrawalPenalty = 0; if (age < 59.5) { earlyWithdrawalPenalty = grossWithdrawal * 0.10; } var totalDeductions = federalTax + stateTax + earlyWithdrawalPenalty; var netCashReceived = grossWithdrawal – totalDeductions; document.getElementById('grossWithdrawal').innerText = '$' + grossWithdrawal.toFixed(2); document.getElementById('federalTax').innerText = '$' + federalTax.toFixed(2); document.getElementById('stateTax').innerText = '$' + stateTax.toFixed(2); document.getElementById('earlyWithdrawalPenalty').innerText = '$' + earlyWithdrawalPenalty.toFixed(2); document.getElementById('netCashReceived').innerText = '$' + netCashReceived.toFixed(2); } // Run calculation on page load with default values window.onload = calculate401kCashOut;

Understanding Your 401(k) Cash Out

Cashing out your 401(k) can seem like an attractive option when you need immediate funds, but it's crucial to understand the significant financial implications involved. Unlike a loan, a cash out is a permanent withdrawal from your retirement savings, and it comes with a series of taxes and potential penalties that can drastically reduce the amount you actually receive.

How a 401(k) Cash Out Works

When you decide to cash out your 401(k), the entire amount you withdraw is generally treated as ordinary income for tax purposes. This means it's added to your other income for the year and taxed at your marginal federal and state income tax rates. For example, if you're in the 22% federal tax bracket and your state has a 5% income tax, a portion of your withdrawal will go directly to taxes.

The Early Withdrawal Penalty

One of the most significant deterrents to cashing out a 401(k) is the early withdrawal penalty. If you are under the age of 59½ when you take the distribution, the IRS typically imposes an additional 10% penalty on the withdrawn amount. This penalty is on top of your regular income taxes, further reducing your net payout. There are a few exceptions to this rule, such as disability, certain medical expenses, or distributions made after separation from service at age 55 or older, but these are specific and not universally applicable.

Example Scenario:

Let's consider an example using the calculator's default values:

• Current 401(k) Balance: $50,000
• Your Age: 45 years old
• Federal Income Tax Bracket: 22%
• State Income Tax Rate: 5%

Based on these inputs, here's how the calculation would break down:

• Gross Withdrawal: $50,000.00
• Estimated Federal Tax (22%): $11,000.00
• Estimated State Tax (5%): $2,500.00
• Early Withdrawal Penalty (10% because age < 59.5): $5,000.00
• Total Deductions: $11,000 + $2,500 + $5,000 = $18,500.00
• Net Cash Received: $50,000 – $18,500 = $31,500.00

As you can see, a $50,000 withdrawal could result in only $31,500 actually reaching your bank account after taxes and penalties. This significant reduction highlights why cashing out should be a last resort.

Consider Alternatives and Fidelity's Role

Before cashing out, explore other options like a 401(k) loan (if your plan allows it) or a hardship withdrawal, which might have different rules. While this calculator provides general estimates, the specific rules and options for your 401(k) are governed by your plan administrator, which could be Fidelity or another provider. Fidelity, like other custodians, facilitates these transactions according to IRS regulations and your specific plan's terms. Always consult with a financial advisor and your plan administrator to understand the full implications for your personal situation.

Using this calculator can help you estimate the net amount you might receive, allowing you to make a more informed decision about your retirement savings.