I would like to cash out my 401k. I am 60 years old. What kind of penalties will apply? Or would a loan against the money be better?

Are you still employed at the company where your 401(k) is? If so, then a loan is generally a better way to go - no taxes are due. Few companies allow employes who are still working to take in-service withdrawals from their 401(k) - unless you meet one of the hardship withdrawal categories. You can ask the plan administrator what the withdrawal rules are for active employees. If you are no longer employed, then you can not take a loan, so a withdrawal is your only option.

Since you are age 60, if you do take the withdrawal you will have to pay ordinary income tax on the withdrawal (assuming there is no after-tax money in the account). You will not have to pay any penalty.

Will I have to have Social Security and Medicare taken out of the 401K benefits?

Does Social Security and Medicare have to be taken out of 401K withdrawals if done so at age 60?

Terry - please:

A. Do not tack a new question onto an old thread, unless it is a direct follow-up to the topic. Instead - always start new threads for new questions.

B. Do not double post the same question into two different forums. See the answer yo your question here:
https://www.askmehelpdesk.com/retirement/free-questions-about-withdrawals-401k-age-60-a-437296.html

How is 59.5 defined? Is it by the time withdraw or the end of the tax year?

I'll be 59 on 1/18/2013, 59.8 on 12/2013. Can I withdraw 401K on Feb 2013 without getting penalty?

59-1/2 is defined as 6 months after your 59th birthday. In your case you will turn 59-1/2 in on July 18, 2013, so that is when you can withdraw without penalty. If you take a withdrawal in February 2013 you would owe the penalty.