How to Cash Out a 401(k) Before Quitting a Job

Your 401k allows you to save money for retirement through non-taxable payroll deductions. The IRS restricts your access to the accumulated balance to encourage its intended use. According to the IRS, quitting your job is one of the few triggers that allows you to cash in your 401k. You must separate from service to your employer, and employers must verify your termination date on your withdrawal request. A few exceptions allow withdrawals before you quit. Most 401ks will allow employees older than 59½ to cash in while still employed. Forbes reports that some 401k plans also allow younger employees to take in-service 401k withdrawals.

• 1

  Review your financial alternatives before requesting funds from your 401k. Reserve a withdrawal from your 401k as a last resort. Talk with your financial adviser for ideas and insights to help you make your decision.

• 2

  Ask your human resources representative to direct you to the individual who manages your 401k plan. Some plans allow a broader range of alternatives than others, so talk to your plan administrator to learn what your 401k offers. For example, some plans allow hardship withdrawals while you are employed, but the rules are stringent. Discuss your plan's restrictions on the types of in-service withdrawals available to you. Read your 401k's summary plan description for detailed information about each option.

• 3

  Calculate the consequences of taking cash out of your plan. If you are younger than age 59½, the IRS generally imposes a 10 percent penalty on funds you cash out. You will also pay income taxes on your withdrawal, giving you far less cash in hand than the balance you request.

• 4

  Fill out the appropriate withdrawal form supplied by your 401k administrator. Read it carefully and select the appropriate options for your withdrawal. If you will owe taxes, instruct the administrator to withhold an appropriate amount from the disbursement.

• 5

  Ask an adviser or your plan administrator to review your selections if you have any questions about the paperwork. Once you submit the application, making corrections will become more difficult. Submit the withdrawal request as instructed by the plan administrator.