How to Take Cash Out of Your 401(k) Plan

Cashing out your 401(k) plan early often leads to extra tax penalties.

Cashing out your 401(k) plan early often leads to extra tax penalties.

If you're not 59 1/2 years old, you can only take a distribution from your 401(k) plan if you leave employment or become disabled. Some plans also allow for hardship distributions for things like medical care, preventing foreclosure and funeral expenses. Depending on your plan and your needs, you could also consider a 401(k) plan loan: You may borrow up to $50,000 or 50 percent of your vested account balance, whichever is smaller. However, bear in mind that your 401(k) plan isn't required to allow hardship withdrawals or loans, so if your plan doesn't offer them, you're out of luck. A loan has no tax consequences as long as you pay it back on time, but an early withdrawal counts as taxable income and may also be hit with a 10 percent early withdrawal penalty.

Early Distribution

Request a distribution from your 401(k) plan by submitting a withdrawal request to your plan administrator. The form requires your name and account information and the amount of the withdrawal. If you have a financial hardship, you'll have to specify it, and your plan may require you to submit evidence of the hardship. For example, if you're claiming you need the money to prevent foreclosure, you might need to submit your mortgage records.

Report the distribution as income on your income taxes. On Form 1040, the amount is reported on line 16b as a taxable pension and annuity distribution. Also, if any money was withheld from the distribution for taxes, report that amount on line 62. This amount is found in box 4 of your Form 1099-R.

Calculate and report the 10 percent early withdrawal penalty using Form 5329. Even in cases of a financial hardships, you still owe the penalty unless you qualify for a specific exemption, such as suffering a disability or having expenses that would be deductible under the medical expenses deduction.


Request a loan from your 401(k) plan by submitting a loan request form. The form requires your name and account information, plus the amount you want to borrow. You don't need to specify a reason unless you're using the loan to buy your primary home and you want a repayment term longer than five years.

Repay the loan as agreed. You must make payments at least quarterly and -- unless you're using the loan for your home -- you can't take more than five years to pay it back. Most employers simply withhold the money from your paycheck to make your loan payments.

Repay the entire loan if you leave your job. If you fail to repay the loan, your former employer will treat the remaining balance as an early distribution.


About the Author

Mark Kennan is a writer based in the Kansas City area, specializing in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."

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