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If you are considering cashing out your 401K plan, there are some things you need to know before you do. With taxes, creditor protection and eligibility to understand, cashing out your 401K may not be as easy as you think.

Eligibility

The first question to ask yourself is, are you eligible to cash out? If you still work for the company that sponsors your 401K plan, you are not eligible. You may, however, be eligible for a 401K loan plan or a hardship withdrawal that would allow you to extract some of your money from your 401K account. Not all plans offer these options so it is best to check with your plan’s administrator first.

If you do not work for the company that sponsors your 401K plan, then you are eligible to cash out of it. If you are not in dire need of the money right now, you may want to rollover your 401K into an IRA so you can pay fewer taxes and keep more of your money.

Taxes

Speaking of taxes, there are many incurred fees involved with cashing out your 401K plan. If you have not yet reached age 59 ½ your withdrawal will assess a 10% penalty tax above and beyond the standard income taxes.

Yes, there are some age rules you have to follow to when cashing out your 401K plan. If you are aged 55 to 59 ½ you can avoid the 10% penalty if you ended your employment after you turned 55. If you are over 59 ½ you will not be subject to any penalty taxes but will be charged income taxes.

Cashing Out

Now that you know the rules, cashing out of your plan isn’t very difficult. The first step is to obtain the required paperwork to cash out your plan. To do this, you just need to call the number that appears on your plan statement and request the paperwork. When you receive it, you fill it out and have it signed by the plan administrator from the firm that sponsors your 401K plan. The paperwork is then submitted and you will receive your money soon.

Depending on the plan and your company, it could take several weeks or even months to receive your funds. Your plan’s documents will list the specific rules for cashing out your 401K and may even offer some helpful advice saving you time along the way.