How to Get My Money if I Want to Cancel My 401(k)

If you stashed money in a 401(k) plan but are wishing you hadn't put it in, you might be stuck wishing you could get it back, depending on your age and financial circumstances. The Internal Revenue Service has fairly strict rules limiting when you can get the money out, and, even if you can access your money, when extra tax penalties apply.

Eligible Withdrawals

Typically, you're only allowed to take withdrawals from a 401(k) if you're at least 59 1/2 years old, you've suffered a permanent disability, or you've left the company. If you're under 59 1/2 and still employed, you might not be able to access your funds. Some employers allow distributions if you have a severe financial hardship, such as the threat of losing your home to foreclose, college tuition, or medical expenses.

Distribution Request Form

If you're eligible for a withdrawal, you need to fill out a distribution request form, available from your 401(k) plan administrator. The form requests your name and account information, the amount you want to take out, and the way you want to receive the distribution, such as a check to you or having it deposited directly into another account. If you're taking a hardship distribution, you may need to include additional documentation to prove your hardship, such as medical bills or a notice of foreclosure on your home.

Tax Implications

If you are allowed to cash out your money, you must report the amount of the distribution as income on your taxes in the year you take the withdrawal. The money gets added to your other income and taxed at your ordinary rate. Depending on the size of the withdrawal, you might even be bumped into a higher bracket, but that higher rate would only apply to the portion of your distribution that falls in the higher bracket.

Penalties

If you're under 59 1/2, you also owe an additional 10-percent early withdrawal penalty, on top of the ordinary income taxes. For example, a $15,000 early distribution would cost you an extra $1,500 on your taxes. You might be able to avoid all or some of the penalty if you qualify for an exception. These include leaving your job after turning 55, being permanently disabled, taking a qualified reservist distribution, or having deductible medical expenses.