I am 100% vested. I have been thinking about a change in employment but need to know if I were to use some of my 401k, for reasons I would rather not disclose, what are the penalties
Darlene, If you are 100% vested, all of the money in your retirement plan should be yours. If you change jobs, you should be able to roll over 100% of the assets in your plan to an IRA or a new employer's plan. Taxes, penalties or withholding could apply if you were to take a distribution from your retirement plan prior to age 59 1/2. But they would not apply to your rolling the assets to an IRA or another employer's plan.
Darlene, any money you withdraw (not rollover to an IRA) from a qualified plan would be subject to ordinary income tax (earned income) for the year you take it, plus, if it is before the year you turn 59 1/2, there is a 10% penalty.
If, however, you leave employment in a company, you can avoid the penalty, but not the tax, if you are over age 55. You would have to be sure the money is still in your old 401(k). If you roll it to another 40(k) or IRA, then the 59 1/2 rule will apply for the 10% penalty.
Hope this helps.
Darlene - yes, in short, if you take a withdrawal directly from an employer retirement plan such as a 401k or 403b - then the plan is required to withhold 20% for taxes. This is the case no matter what your age.
If you perform a direct rollover (NOT a manual, 60-day rollover) then this requirement is waived. However, all other WITHDRAWALS (not loans) do require that the plan withhold 20% for taxes.
As the other advisors mentioned, there is a 10% penalty if you are too young. HOWEVER - that penalty only applies if you are under AGE 55 for a 401k plan if you are no longer working at that company.
What all they said, but also you are also generally under no obligation to do ANYTHING with the money. You can leave it in the 401k indefinitely if you wish. However, if your balance is below certain thresholds, the plan can require you to either roll it over to another plan (or IRA) or take a taxable distribution. Be aware if you (and your spouse if married) have substantial income in the year you take the distribution, the 20% they withhold might not nearly be enough if you are under 59.5 because of the 10% penalty. I have seen higher income earners who took distributions have to turn over as much as 50% of the money they received in tax.
Just to clarify, most companies permit withdrawals from 401K plans only when you either retire or leave the company. But as James noted, you are not normally required to take the money when you leave. ..you can let it stay in the plan and continue to grow. But if you decide to take it out, you can rollover the money to a new employer's plan (provided that plan permits it) or an IRA you set up or simply have them send you a check. If you roll the money over, then there will be no withholding for taxes. But if you a check sent to you (called a "distribution") the company is required by law to withhold 20% for taxes. They don't keep it however...they send it into the IRS. Then when you file your tax return next year, the amount you withdrew you will include as part of your income and the amount they withheld is counted as a credit against the total amount of taxes you will owe.