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Asked 11/5/2008

Can I cash out my 401k without quitting my job?

I'm in an extremely bad situation. I need to get at my 401K, but the reason I need the money is for legal fees which doesn't qualify as a hardship. Is there any way that I can just cash out my 401K or at least my contributions to it, without quitting my job?

 
 
 
 
 
Answers

Answer 1/6 - Submitted 11/6/2008

You should be able to cash it out but you will pay a 10% penalty for early withdrawal and the money is considered as taxable income so you will have to pay taxes according to your bracket.

 
 

Answer 2/6 - Submitted 11/7/2008

You might be able to either take a loan out against it, or else pay hefty penalties on it.

 
 

Answer 3/6 - Submitted 1/29/2009

You cannot close while still employed. Does the plan offer loans? You can stop contributing, but you cannot close until you leave employment, reach 59 1/2 or are permanently disabled.
The taxes and penalties apply to the above, except for over 59 1/2.

 
 

Answer 4/6 - Submitted 12/31/2011

You cannot cash out a 401k plan while you are still employed by your company. Most employers offer the ability to take out a loan. With the loan you agree to pay it back in a certain timeframe. The nice thing is you avoid the taxes and penalites while you still get the money you need. The interest you are paying and the payments are all paid into your 401k plan. If you were to leave your job then you would have to pay taxes and penalties on the amount that you had not repaid prior to leaving the company. It is one solution for the situation you are in.

 
 

Answer 5/6 - Submitted 1/7/2012

You are not able to cash-out your 401k without terminating your employment.

If you do, you will be required to pay income tax on the amount you withdraw. Additionally, if you are under the age of 59 1/2, you will pay an early withdrawal penalty of 10%.

Also, you may want to check if the company matching (non-vested) amount will be forfeited.

Another option to consider is a loan against your 401k. Many companies provide a loan option against their 401k up to 50% of the 401k balance that is fully vested. Typically, your contributions are 100% vested upon deposit and any company's contributions will have a vesting schedule (For Example: 10 % of the amount they contributed for each year of employment and fully vested at 10 years).

 
 

Answer 6/6 - Submitted 1/7/2012

You can cash out your 401k but it comes with some pretty high penalties of 10% not to mention the fact that it also has the problem of next year when you file taxes it will be taxed as regular income. So in effect you will be hit twice. If I were you I would try to figure out another way, any other way to deal with the legal bills. I'm sorry you have to be in this position. Do you have say a Roth IRA because you can take that money that you put in without any expenses or fees or fines. But you can't take out any of the gains that the funds have made. What about a personal loan from the bank or man even a credit card and keep doing the balance transfer shuffle until it's paid off that would be cheaper. Because what your looking at with this option is say you take out $100,000.00 you get taxed 10%. That cost you $10,000.00 now say you are in the 18% tax bracket, that will cost you another $18,000.00 right there. So, the grand total is $28,000.00 to take out $100,000.00. Wow, that's more than I even thought.

 
 
 
 
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