Hi all,

I have limited knowledge on 401(k) and have ben reading many articles on the net. I need advice on how to withdraw the amount from my 401(k) with minimum tax/penalty.

I am 30 years old. I worked in US from 2002 - 2006 and invested in 401k. My company also contributed and this grew to around $21k. Since then I have moved to UK for studies (2006-2007) and then I work here in UK (2007 onwards). During all this time, I never left the company - I was in sabbatical during my studies and now, I work for the same company, in their UK branch.

I wish to withdraw the money and either move it to UK (working country) or India (home country). I am happy to preserve this as another local retirement plan or as cash.

Questions:
1) Hardship withdrawl- Student Loan: Though I have finished studies, I have an outstanding student loan in Wachivia bank for $45K. Can I withdraw from my 401k and pay here? Will Ibe able to avoid the penalty 10% in this method? I don't have any other income from US, so I suppose I will pay around 12-14% income tax for this $21K - nearly $3K.
2) Hardship withdrawl- Primary home: I am building a primary home in India that costs much more than $21K. Can I withdraw from my 401k and pay here? Will Ibe able to avoid the penalty 10% in this method? I don't have any other income from US, so I suppose I will pay around 12-14% income tax for this $21K - nearly $3K.
3) Local pension plan: I read in a post in this forum that it may not be possible to move 401k to UK pension plans, but would I be able to move it to a retirement plan in India? Will I be able to avoid penalty/taxes in this way?
4) Distributions: I hear about distributions over a period. Will this provision help me? Will I be able to avoid penalty/taxes in this way?
5) IRA: I also hear some advice on moving the funds to an IRA. Will this help my cause and how can I do this?

What is the best way and how much will I loose in tax/penalty. Any help will be greatly appreciated.

Thanks,
Sampath

The "hardship withdrawals" from a 401(k) are not without penalty - so under whichever scenario you consider, whether it be for education or a house purchase, at your age a withdrawal from a 401(k) incurs both regular income tax on the withdrawal plus the 10% penalty.

As for rolling the $21K to a retirement vehicle in India - you should ask your plan administrator about that. Most plans do not allow an in-service rollover. Also, a rollover to a foreign plan may trigger income tax - I'm not an expert on this aspect, but sooner or later Uncle Sam will want to collect the income tax from you that you deferred when you invested in the 401(k).