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

You should have posted this before you started investing in 401K. Still it is not too late. If you leave the money till you are 59 1/2 then you will have many other problems. You may not even have a bank account in the U.S. How will you transfer the money to your country? How will you handle the tax implications?

There are certain exceptions to this 10% early withdrawal penalty from 401K.
1. Distributions made to your beneficiary or estate on or after your death.
2. Distributions made because you are totally and permanently disabled.
3. Distributions made as part of a series of substantially equal periodic payments over the life expectancy of the owner or life expectancies of the owner and the beneficiary.
4. Distributions that are equal to or less than your deductible medical expenses, that is, the amount of your medical expenses that is more than 7.5% of your adjusted gross income.
5. Distributions made due to an IRS levy of the plan.

If you do qualified roll over to Trad IRA, you have a few other exceptions to the 10% penalty. You may have roll over to Roth IRA. In that case all the money that you roll over is your taxable income. You may do this when you have little in the U.S.