What early-withdrawal penalty does the speaker cite?

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

You think you have a million in your 401k. You do not.

26 Aug 2025 · 1 min

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1:06

A short advisory video by Craig Wear, CFP® warning that nominal 401(k) balances overstate post-tax wealth because traditional 401(k) contributions grow tax-deferred and will be taxed on withdrawal. The speaker calls the IRS a "partner" waiting to take its share, highlights uncertainty about future tax rates, notes early withdrawals face income tax plus a 10% penalty, and recommends tax-free growth options (Roth IRA, Roth 401(k)) or large Roth conversions to reduce future tax uncertainty.

Questions this video answers

10% early-withdrawal penalty (in addition to income tax).

Chapters

Your 401k has a partner that maybe you don't think about all the time, and that's the irs. So someone tells me, I got a million bucks in my 401k. I'm thinking, well, great, but how much of that is actually yours? See, when your money is in the traditional 401k, you haven't really paid taxes on it yet. That means that your partner, the IRS is just kind of waiting to take their cut. It's kind of, it'll be time to pay the piper one of these days. And guess what? You don't even know how much they're going to take because we don't know what future tax rates are going to be. It's kind of a giant question mark. If you withdraw early, you're going to get hit with income tax and a 10% early withdrawal. And it's like kind of kicking a tax bill down the road without knowing the price tag. You're the general partner and the IRS is kind of the limited partner. So if you want more control, consider tax free growth options like a Roth IRA or a Roth 401K. Or consider doing massive conversions to get out from underneath the control, the IRS or the uncertainty of where tax rates are going to be in the future. And always remember, what's in your 401k isn't really what you're going to walk away with. You got to consider what the after tax portion really is going to be.