<<What is the penalty for pulling your funds from the 401k?>>
My Company manual says:
If your benefits qualify as eligible rollovers, you have the option of having them paid directly to you, when they become due, or having them directly rolled over to another qualified plan or an IRA. If you do choose to have the payment made to you, you still have the option of rolling over the payment yourself to a qualified plan or an IRA within sixty days. However, 20% of your payment will still be withheld.
For example, if you have $100,000 in your vested account balance and choose to have the payment of your benefits made directly to an IRA or another qualified plan, the entire $100,000 will be transferred to the trustee of the other plan or the IRA, and you will treat the entire amount as a rollover on your tax return so that you will not pay taxes on the entire amount. If you choose not to have the account transferred directly to an IRA or qualified plan, 20% or $20,000 will automatically be withheld from your payment. Thus, you will receive only $80,000 as a distribution of your benefits. In order to roll the entire amount over into your IRA, you would have to come up with $20,000 out of your own pocket to make up the difference. If this is done, the $20,000 which was withheld may be returned when you file your taxes at the end of the year. However, if you are unable to produce the extra cash, the rollover amount will only be $80,000, and the other $20,000 which was withheld will be treated as taxable income to you. If you are under age 59 1/2 when you receive your benefit payment, the withheld amount will also be subject to the 10% early distribution penalty.
My problem is I don't have another IRA to roll it into unless I start one before I withdrew my funds. I don't know if a personal IRA would qualify as a rollover account. I would not be able to come up with the 20% cash needed to make up the difference. Sounds like my best bet is wait until I'm 59 1/2 to withdraw my funds.
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