So I have gone through all my options and this makes the most sense and will get me back on track to financial freedom. I’m okay with paying the 40% hit. I spoke with my employer and they said that they’re okay with letting me resign so i can access my 401k. Then rehire me. Our 401k administrator or adviser called me and informed me that he has to inform my employer that this will put me and my employer at a huge risk for tax audit. Is this true?
The 401(k) plan document governs the operation of the plan. It sounds as though the document prohibits in-service withdraws therefore you would have to separate from service to be able to access your savings. Plan documents have re-hire provisions in their eligibility determination language so going back to work for the same employer is not an uncommon occurrence. If you pull your money from the plan you will owe current income taxes on the proceeds plus a 10% penalty if you are under age 59 1/2. Since when does the govt not welcome a taxable event?