Newbie here. Not in the best financial situation. checking overdrawn, past dues etc. I have about $13.900 sitting out in a 401k. I am thinking of cashing it in. However, there is that 30% penalty. I had read that I could roll it into an IRA and then take money out with a little less penalty. Is this the case? I am just in the beginning stages of researching the pros and cons of this and am very uninformed. Any info is appreciated. Thanks! - Tootall

I don't think you can roll over a 401K if you are still with your employer. You might be able to get a loan from your 401K or withdrawl. But you need to check with your HR for more information on that because the rules vary between plans.

You can roll it over to an IRA only if you leave your current employer. I did this when I left my old job to WAH and it was very simple.

Agreed on both counts- you have to leave your current employer and it's very simple- any brokerage will help you with the rollover. But, there's no way to avoid the taxes on it if you withdraw $$ before you're 59 1/2, whether it's with your current employer or you roll it over to a brokerage. You may want to look into taking out a loan against it if you need the cash. But keep in mind that if you leave your employer you'll have to pay back whatever you owe within 90 days or it's considered a taxable withdrawal.

I thought the tax didn't kick in until/unless you took possesion of the funds before placing it with the brokerage. If you do a rollover do you really have/get possession of the funds?

I don't believe that is correct. Whether you leave it in your employers' plan or roll it over, you will still be stuck paying the 30% because that consists of the amount that you did not pay taxes on (20%) and the 10% early withdrawal penalty. About the only way you can reduce that is if you withdraw the money for a hardship reason or for a first time home purchase. And even then, it only exempts you from the 10% early withdrawal penalty. You still have to pay the 20% for taxes.

At least that is the way I understand the rules. You can always look it up on www.irs.gov


Oh..and I believe (as other posters have stated) that you can only roll it over if you are no longer with your current employer. I just rolled over an amount to Fidelity from an old employer that I forgot I had a 401K with. The entire (vested) amount is eligible for rollover. What they did for me is send me a check for the entire amount made payable to Fidelity in my name.

Right- but I got the impression the OP was hoping to roll it over into an IRA and then be able to withdraw from that IRA with less severe tax consequences than if he/she had left it with the employer. You're right that in a properly-done rollover, they either send it directly to the brokerage or give you a check payable to the brokerage. Those aren't treated as withdrawals.

Thanks to everyone for the replies. I should have specified that I no longer work for the original company. A loan against the 401k isn't a possibility since I don't work there anymore. I guess it seems that the tax consequences are the same regardless of whether you withdraw from a 401k or an IRA. thanks - tootall