I am over age 55 and have a 401k with about $200,000 that I need to access due to unemployment of > 4 months. We bought a house 5 months ago. Based on current economy, there are very few jobs in my occupation in this area at this time. Can you withdraw 50% of a 401k? How can I access about 1/2 of the 401k funds to get expenses down so that we can financially survive until I find another job. Because of my age, what is the penalty. I understand that I will need to pay taxes.

The good news is that if you left the company where your 401(k) resides in the year you turned age 55 or over, you will not be socked with the 10% early withdrawal penalty. The bad news is that, yes, you will owe ordinary income tax on any distribution.

Yes, you should be able to take a distribution of 50% of your account(assuming it's all vested), and you control whether it's a one-time distribution or if you would rather set up a series of distributions. Call the plan administrator to find out how to do this. They will withhold 20% of any distribution for federal income taxes. Be aware that if you take $100K it may push you into a higher tax bracket, so be careful that you consider whether you will also need to file estimated taxes in January 2009 to avoid any penalties for underpayment of taxes in 2008. If you live in a state or municipality that has an income tax you will have to pay that as well.