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401k or Roth IRA

Compare a traditional 401(k) with a Roth IRA or Roth 401(k) using your tax rate now and in retirement, then see what a 401(k) early withdrawal really leaves you after the 10% penalty and taxes, and how a 401(k) loan compares.

Updated November 4, 2026. Free, no sign-up; everything runs in your browser and nothing you type is stored.

401k or Roth IRA?

Amount of pre-tax pay to save ($/year)Your tax rate now (federal + state %)Expected tax rate in retirement (%)Return (%/year)Years invested

–Traditional 401(k), after tax later

–Roth, tax-free later

–Better choice

401k early withdrawal penalties vs a 401k loan

Amount ($)Federal tax rate on it (%)State tax rate (%) An exception applies (Rule of 55, disability, etc.)Vested 401(k) balance ($)401(k) loan rate (%)

–Cash you keep from a withdrawal

–10% early withdrawal penalty

–Income tax

–Plan withholding

–Maximum 401(k) loan

–Loan payment instead

401k vs Roth IRA: the tax-rate rule

A traditional 401(k) saves tax now and taxes withdrawals later; a Roth taxes money now and withdrawals are tax-free. With the same contribution of pre-tax pay, whichever lets you pay tax at the lower rate wins. Same rate now and later: they tie. $7,500 at 6% for 30 years: traditional ends at about $35,700 after a 17% tax later; Roth at about $31,400 after paying 27% today, so the traditional 401(k) wins for someone in a higher bracket now.

Always take the full 401(k) employer match first; it's free money in either account.
Roth IRA: $7,500 limit in 2026 ($8,600 at 50+), income limits $150,000–$165,000 single and $236,000–$246,000 joint; contributions can come out any time. 401(k): $24,500, no income limit, and a Roth 401(k) option at many employers.
401k versus IRA: a 401(k) has higher limits and a match; an IRA has more investment choices. A 401k rollover to IRA after leaving a job keeps the tax status; Roth money goes to a Roth IRA.

401k early withdrawal penalties

Withdrawals before 59½ usually pay income tax plus a 10% penalty, and the plan withholds 20% federal up front. $20,000 at a 22% bracket plus 5% state tax leaves about $12,600. Exceptions include leaving your job in or after the year you turn 55 (Rule of 55), disability, medical costs over 7.5% of AGI, a $1,000-a-year emergency withdrawal, up to $5,000 per birth or adoption, and substantially equal periodic payments.

401k loan instead

Most plans let you borrow up to 50% of your vested balance, maximum $50,000 (or up to $10,000 if half is less), usually repaid by payroll over 5 years with interest paid to yourself. There's no tax or penalty unless you leave your job and don't repay by the tax-filing deadline. The cost is lost growth on the borrowed money.

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Common questions

Should I choose a 401(k) or Roth IRA?

Pick the one that taxes you at the lower rate: traditional if your rate is higher now, Roth if it'll be higher later; take the match first.

What is the penalty for early 401(k) withdrawal?

10% plus income tax, unless an exception like the Rule of 55 applies.

How much can I borrow from my 401(k)?

Up to 50% of the vested balance, maximum $50,000.

Can I have both a 401(k) and a Roth IRA?

Yes, if your income allows Roth IRA contributions.

How much will I keep from a $20,000 401(k) withdrawal?

About $12,600 with a 22% federal and 5% state rate and the 10% penalty.

Sources

General information, not financial, tax or legal advice. Check important numbers with the official source before acting on them.