How to Cash out a 401(k) Early

Use caution when cashing out your 401k.

While the money you set aside in your 401k plan is designed to help fund your retirement, there are times when you need to cash out the plan early. While cashing out a 401k plan before you reach retirement age is expensive, possibly subjecting you to a 10% penalty and thousands in additional taxes, if you have no other source of money, it can sometimes make sense to use the money in your 401k to fund current living expenses.

Step 1

Find the most recent statement from your 401k plan. This will give you an idea of how much is in the fund, although the exact amount might be more or less depending on whether the stock market rose or fell since the statement was issued. If you have online access to your account, you can check the balance that way.

Step 2

Contact the custodian holding the 401k plan. In most cases, the custodian is a brokerage firm, a mutual fund company or a bank. Your employer can provide this information if you do not have it. The name and telephone number of the custodian is also listed on your 401k balance statement.

Step 3

Inform the representative that you wish to cash out your 401k plan. Tell the representative how you plan to use the money--that will make it easier to determine if the withdrawal is subject to tax penalties and income taxes. If the withdrawal is used to purchase a primary residence or pay certain college expenses, you might not have to pay the 10% penalty, although the money you take out is still subject to ordinary income taxes.

Step 4

Complete the paperwork required to make the withdrawal. Depending on the custodian, the forms might be available on the organization's website. Otherwise, wait for the forms to arrive in the mail, fill them out completely, sign them and mail to the address provided.

Step 5

Indicate how you wish to receive the proceeds from your 401k, i.e. check, bank transfer, wire. Keep in mind that it could take at least a week to close the 401k and transfer the funds.

Things You'll Need

  • 401k statement

  • Withdrawal form