Craig Wear, CFP®Craig Wear, CFP® | Expert in Roth Conversions & Tax-Efficient Retirement Strategies for IRA Millionaires

Most people think cashing out a 401k just means less money in the account.

21 Aug 2025 · 1 min

Watch on YouTube

0:40

A short YouTube clip by Craig Wear, CFP® explaining what happens when someone cashes out a 401(k). Uses an anecdote of a woman who allegedly drained her 401(k) and faced tax consequences to explain that withdrawals generate IRS Form 1099-R, which reports distribution amounts. Advises viewers to avoid panic, verify paperwork (order IRS transcripts at IRS.gov if needed), and file accurately to avoid taxes and penalties.

Chapters

What actually happens when you cash out your 401k? A woman I met with once claimed that she drained her 401k twice and now owes taxes that ruined her credit. Now, if she did withdraw from her 401k, the IRS would have issued a 1099R form. And that form tells the government how much you pulled. And if you don't report it properly, you're going to owe income tax and possibly penalties. If you didn't get the form, you can always pull the IRS transcripts online@the IRS.gov site and fix it with some tax software. Moral of the story don't panic. Don't guess. Always check your documents and file them properly, especially with retirement accounts, because there's so much to lose if you don't get it right.