Can I Cash Out my 401(k) Anytime and Take the Cash?

A quick clarification for a couple readers asking whether you can cash out your 401(k) and take a cash dispersal. The quick answer is no, not anytime.

If you have left an employer where you had a 401(k), you can cash out that 401(k) anytime, but that withdrawal will be subject to 20% federal income taxes and the 10% penalty if you cash out before age 59 ½.

You cannot take a cash 401(k) withdrawal while you are currently working for the employer that sponsors the 401(k) unless you have a major hardship. You can cash out your 401(k) before age 59 ½ without paying the 10% penalty if:

1. You become completely and permanently disabled
2. Your incur medical expenses that exceed 7.5% of your gross income
3. A court of law orders you to give the funds to your divorced spouse, a child, or a dependent
4. You retire early in the same year you turn 55 or later
5. You are permanently laid off, terminated, quit, or retired and have established a payment schedule of regular withdrawals in equal amounts of the rest of your expected natural life.

Additionally, you can cash out your 401(k) and pay the 10% penalty if you need funds for certain financial hardships and have no other source of funds. These hardships include:

1. The purchase of your primary home
2. Higher education tuition, room and board and fees for the next twelve months for you, your spouse, your dependents or children
3. To prevent eviction from your home or foreclosure on your primary residence
4. Tax-deductible medical expenses that are not reimbursed for you, your spouse or your dependents
5. Other severe financial hardship

Even if you meet these requirements, cashing out your 401(k) should always be seen as an absolute last resort.

Related Posts

• Roth IRA or Traditional IRA: What Do You Do?
• Should You Cash Out Your 401(k) When Leaving a Job?
• Emergency Fund Calculator: How Much Cash Do You Need?
• Are Joint Credit Card Accounts a Good Idea?