Withdrawals from Traditional IRAs and 401(k)s before age 59½ are generally subject to a 10% early withdrawal penalty in addition to ordinary income taxes. This penalty is assessed by the IRS to discourage early use of retirement savings.

Common penalty exceptions may include:

• First-time home purchase (IRA only, up to $10,000)
• Qualified higher education expenses (IRA only)
• Certain medical expenses exceeding 7.5% of AGI
• Substantially Equal Periodic Payments (72(t)/SEPP)
• Disability or death of the account holder
• Qualified birth or adoption expenses (up to $5,000)

Penalty exceptions have specific eligibility requirements. This calculator does not account for penalty exceptions. Consult a qualified tax professional to determine whether an exception applies to your situation.

All of these accounts are tax-deferred – contributions may reduce your taxable income, but withdrawals are taxed as ordinary income. The early withdrawal penalty before age 59½ is generally 10%, with one exception noted below.

Account types:

• Traditional IRA – Individual account you open and manage yourself. Offers a 60-day rollover option (once per 12 months) and penalty exceptions for first-time home purchases and education expenses.
• 401(k) / 403(b) – Employer-sponsored plans. Many allow loans (typically up to 50% of balance, maximum $50,000) and hardship withdrawals with potentially waived penalties. IRAs do not offer loans.
• SEP IRA – Simplified Employee Pension for self-employed individuals and small business owners. Withdrawal rules are the same as a Traditional IRA.
• SIMPLE IRA – Savings Incentive Match Plan for Employees. Same withdrawal tax treatment, but with one important difference: withdrawals within the first 2 years of participation may be subject to a 25% early withdrawal penalty instead of the standard 10%.

Rules for retirement account withdrawals can be complex. Consider consulting a qualified tax or financial professional before making a withdrawal.

When you withdraw money from a retirement account, you lose not just the amount withdrawn, but also the potential future growth of that money. This is sometimes called "opportunity cost."

This calculator estimates potential lost growth using a 7% average annual return, which is commonly used as a long-term estimate for a diversified portfolio. This is an assumption for illustrative purposes only.

Important considerations:

• Actual investment returns vary and are not guaranteed
• Past performance does not guarantee future results
• This estimate does not account for inflation, fees, or changes in contributions
• A financial professional can help you evaluate the long-term impact based on your specific portfolio and goals

Withdrawals from tax-deferred retirement accounts are treated as ordinary income and added to your other income for the year. This means the withdrawal is taxed at your marginal tax rate.

If the withdrawal is large enough, it may push a portion of your total income into a higher tax bracket. This calculator estimates the tax impact by comparing your federal tax with and without the withdrawal.

This calculator uses 2026 federal tax brackets, the standard deduction, and a flat state tax rate for estimation purposes. Actual tax liability depends on your complete financial situation and may differ.

Before withdrawing from a retirement account, consider whether any of these alternatives may be available to you:

• 401(k) loan – Borrow from your 401(k) and repay with interest to yourself. No taxes or penalties while in good standing, though there are risks if you leave your job.
• Roth IRA contributions – If you have a Roth IRA, your contributions (not earnings) can typically be withdrawn at any time without taxes or penalties.
• Home equity or personal loan – Depending on interest rates, borrowing may cost less than the combination of taxes, penalties, and lost growth.
• Emergency fund – Using non-retirement savings helps preserve the tax-advantaged growth of your retirement accounts.
• Hardship withdrawal – Some plans offer hardship distributions with waived penalties for specific qualifying events.

Each option has tradeoffs. A financial professional can help you evaluate which approach may be most appropriate for your situation.