Before age 59½ · 2026 federal tax
What Cashing Out a 401(k) Costs
Changing jobs, laid off or moving home? See the income tax and the 10% additional tax on taking a traditional 401(k) or IRA early, what the plan withholds, and what is left to pay.
Example: Kiran, on H-1B, cashes out a 401(k) in 2026
About $6,400 of federal tax on it
$6,400- Income tax on the $20,000 still taxable, at 22% on the last dollar$4,400
- Additional tax, 10% before age 59½$2,000
- 20% withheld at payout-$4,000
- Still due with your return$2,400
You keep $13,600 of the $20,000 you did not put back, once your return is settled.
A 401(k) payout you could roll over has 20% withheld, and you cannot choose less. A direct rollover to a traditional IRA or another plan has none, and generally no tax until you take the money out.
Leaving your job in or after the year you turn 55 is an exception for a 401(k), not for an IRA. An exception removes only the 10%: income tax is still due.
Federal tax only, for a resident alien taking pre-tax money before age 59½ in 2026, with the standard deduction. Not covered: state tax, Roth accounts, a SIMPLE IRA in its first two years (25%), hardship payouts' withholding, and any figure for a nonresident alien. An estimate, not tax advice. Checked against IRS sources on . How we research.
How much tax do you pay on an early 401(k) withdrawal?
Income tax on the taxable part at your own rate, plus 10% of it, unless an IRS exception applies. A single resident earning $70,000 who cashes out $20,000 in 2026 owes about $6,400, and only $4,000 of it is withheld.
The payout is added to your other income, so it is taxed at the rate of your top bracket, 22% in the example, on top of the 10%.
Leaving the US?
In a year you are a nonresident alien, the payer generally withholds 30% instead, and where each part is reported depends on whether it comes from your US work or from earnings. The full guide to early withdrawals, and what to do before you leave.
Sources
01What does cashing out a 401(k) early cost?
Income tax on the taxable part at your own rate, plus a 10% additional tax on it, if you are under 59½ and no IRS exception applies. For a single resident earning $70,000 in 2026, a $20,000 cash-out costs about $6,400 of federal tax: $4,400 of income tax and $2,000 of additional tax.
02Is the 20% withheld all the tax I owe?
Not always. The 20% is a payment toward your tax; your return works out the real amount. In the example, $4,000 is withheld and $2,400 more is due with the return.
03Do H-1B workers pay the 10% penalty?
An H-1B worker who is a resident alien does, if they take money out before age 59½ and no exception applies, under the same rules as a US citizen.
04Which exceptions avoid the 10%?
They differ between plans and IRAs. Leaving a job in or after the year you turn 55 is an exception only for a plan such as a 401(k); higher education and a first home (up to $10,000) only for an IRA. Medical expenses above 7.5% of AGI, up to $5,000 per child for birth or adoption, and one emergency payout a year of up to $1,000 are exceptions for both. An exception removes only the 10%: income tax is still due.
05How do I avoid the tax altogether?
Roll it over. A direct rollover to a traditional IRA or another plan has no withholding and generally no tax until you take the money out. Most payouts made to you can still be rolled over within 60 days of the day you receive it.
06How much is withheld for a nonresident alien?
Generally 30% of the US-source amount, or a lower treaty rate. Form W-4R is not for nonresident aliens. The payer may use graduated rates on the part from your US work after 1986 if you give it Form W-8BEN or Form 8233 before the payment.
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