How to Cash Out a 401(k) Instead of Rolling Over

You might avoid a penalty if you use your 401(k) to stop foreclosure.

You might avoid a penalty if you use your 401(k) to stop foreclosure.

Even the best laid financial plans can go awry, but you can tap into your retirement savings from your former employer to cover unexpected emergencies. You can cash out your 401(k) once you no longer work for the employer sponsoring the account. You will lose 20 percent of the account's balance to federal tax withholding and might lose another 10 percent, the federal penalty for 401(k) early withdrawal, when you do your federal taxes. You also might have to pay state taxes on the withdrawal.

Check over your original 401(k) plan paperwork for detailed information about cash out procedures. Tell the person who is responsible for 401(k) plan administration at your former job that you're planning to cash out the account immediately. If you wait, your employer might direct the 401(k) company holding the account to rollover your 401(k) into an IRA instead. Ask for the paperwork necessary to cash out the 401(k).

Contact the company handling your 401(k) if you can't get the papers from the plan administrator. Ask the representative for the papers you need to cash out the account.

Complete the papers. What you need will vary by company, but expect to sign a release allowing the company to give you the money and an acknowledgment of possible tax penalties you'll incur. You might need to give the company a copy of your identification and fill out a tax form for reporting the cash-out to the IRS. Follow all directions on the forms you're given.

Return the papers to the company. Make copies before you do so for your records. Contact the company after three days or so to confirm they received the paperwork. Ask how long it will take to get your money so you know when to expect the check.


  • You might be able to cash out your 401(k) even if you are still working for the employer sponsoring your account if you experience a significant hardship, such as foreclosure.
  • You may cash out the 401(k) without the extra 10 percent penalty under certain circumstances, such as your complete and permanent disability.
  • Your plan might allow loans against 401(k) accounts. If this option is available, consider taking a loan out against your account instead of cashing out.


  • Because the 401(k) cash out money is considered income for tax purposes, having that amount added to your other income could raise your personal income tax rate.

About the Author

Anna Assad began writing professionally in 1999 and has published several legal articles for various websites. She has an extensive real estate and criminal legal background. She also tutored in English for nearly eight years, attended Buffalo State College for paralegal studies and accounting, and minored in English literature, receiving a Bachelor of Arts.

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