If I was to take out an early withdrawal from my 401K retirement fund, what are the penalities? I have been laid off work and my severance is going to run out. I did not want to touch this account but when the money is not there anymore, you need to get it somewhere! I was thinking of taking out $5,000.

Thank you!

Assuming you are under 55: you will have to pay a 10% penalty plus ordinary income tax (both federal and state). They should autmatically withhold 20% as an estimate for your federal tax, sending you a check for $4K. Out of that you should keep $500 in reserve for the 10% penalty (which you will haveto pay with your tax return in April 2009) plus whatever your state or local income tax is - perhaps another $250 or so? Bottom line- when you withdraw $5K you can only use about $3250.