I have been laid off due to a work injury. To survive I must cash in my 401k, but I am trying to avoid the early withdrawal penalty. I have not yet been declared disabled but am currently pursuing this. Our family taxable income is only 26,000.00. I am currently receiving workman's compensation but they have terminated my work health insurance. We have 5 children, 2 in college. Is there any options I may have for avoiding the early withdrawal penalty. I know there is a hardship clause, but not sure if I qualify. I am only 47.

You may qualify to take a penalty-free withdrawal if you meet one of the following exceptions:

You become totally disabled.
You are in debt for medical expenses that exceed 7.5 percent of your adjusted gross income.
You are required by court order to give the money to your divorced spouse, a child, or a dependent.
You are separated from service (through permanent layoff, termination, quitting or taking early retirement) in the year you turn 55, or later.
You are separated from service and you have set up a payment schedule to withdraw money in substantially equal amounts over the course of your life expectancy. (Once you begin taking this kind of distribution you are required to continue for five years or until you reach age 59 1/2, whichever is longer.)

According to http://www.401khelpcenter.com/mpower/feature_121902.html

Do you meet any of those criteria for a penalty free hardship withdrawal?

Looks like you may qualify under the first criteria, but only after you have been declared disabled. You might also be qualifed under the second.

If you do not meet any of the criteria at the time you take the withdrawal, then you will be subject to a 10% penalty. Either way you will have to pay taxes on the amount withdrawn at whatever your current tax rate is.

By the way, you don't get "laid off" due to a work injury. You may not longer be able to work due to the injury, but a company can't terminate your job if injured on the job.

Thanks so much for the input and the link. Hate to tell you but I was told I was terminated while being treated for a workman's compensation injury. In fact I had just had surgery the previous week. The company is in the state of Iowa, and according to them they can do this. The state of Iowa has many laws protecting the company and not many protecting an injured employee.

Double check the Workman's Comp laws. WC is a federal program administered by the states. It is possible you can be termed once you have been approved for WC, but there may be conditions attached.

Sorry to hear this, it seems a lot of company find ways to do this to their employee all the time... Next time you say to yourself I love my job... think if they really love you?
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I left my previous job because I felt bad after letting people go like yourself there... Now I just work from home