I am 34 years old and I am in the middle of getting approved for visual disability. Once I am approved for SSDI, I am aware that I will be able to cash out my 401k without the 10% penalties. In doing so, what measures do I need to take to ensure the 10% early withdrawal penalty is not enacted. Any help to would be greatly appreciated.

Thanks
Marshall

The 10% penalty is not automatically withheld when you get the distribution. What happens is the administrator will automatically withhold 20% for income taxes from your distribution (sorry, this is taxable income regardless of whether you avoid the additional 10% penalty or not), and at the end of the year they will send you a 1099-R form that reports the distribution and taxes withheld. When you do your taxes come April, you report the distribution as regular income, and the 20% withholding as taxes already paid. Now, your administrator may be savvy enough to check off box 7 on the 1099-R which indicates that this withdrawal is not subject to the 10% penalty. If so, all is well. If not, then you need to attach form 5329 to your return, which is where you give your reason for the exception to the 10% penalty.

Here's a web site that explains it better than I:
Early Withdrawal of IRA, 401K & Other Retirement Accounts - Tax on Early Distributions (http://taxes.about.com/od/preparingyourtaxes/a/1040line59.htm)