Hi,
I have approx. 20K in my 401k account. I am a non-resident in US. I will be leaving my job and relocating to UK permanently. In fall 2008, I will be going to full-time school in UK for two years and then I plan to work Europe.

My question is - When is the right time to withdraw my 401k balance? I would need this money during the next two years to pay for living or tuition. I am currently planning to withdraw 401k balance right before quitting my job.

I am exploring, whether I could save Fed/State taxes or penalty taxes, by timing my withdrawal appropriately.

Any feedback or suggestions are welcome.

Thanks,
Akp

PS- My adjusted income for the year 2008 will be less as I am paying mortgage interest and tuition. Also, I won't have any income for 2nd half of 2008. I will not have any income in year 2009.

If you withdraw from 401K, you will pay 10% early withdrawal penalty and the amount will be taxed as ordinary income.
So it is better to withdraw in a year, then your other income is minimum. May be withdraw in early 2009 so that 401K amount is your only income. Then you must also file your 2009 tax return.