Yes you are. Anytime you withdraw before 59 1/2 you must pay tax and penalty. (If you are over 55 and terminated from the job the penalty drops off as well.) Best bet is to roll to an IRA and continue the savings toward your retirement.

You have to ask yourself if you are willing to absorb the loss. The 401K savings, which has not been taxed and will be taxed when you take it out, will also come with an additional 10% penalty on top of those taxes if you remove it from your savings before age 59 and a half.

There are a few exceptions that include situations over age 55 or in proven emergencies, but rolling over that 401K is a far better investment than taking the big tax & penalty hit if you don't absolutely, positively need that money.

The temptation to cash it in may be high but if you figure the government will take at least 30% in taxes plus another 10% penalty, your savings become worth about half of what you worked to have. That's not a loss most people want to take unless they are in the most dire of financial circumstances.