I am eligible for early withdrawal of this money of course knowing that I will be penalized. If I choose to withdraw early, I will be taxed 20% with a 10% penalty, correct? The distribution of funds will be issued over a 5 year period. Will I be taxed each year for 5 years or is it up front? Going through financial difficulties, this is the only reason that I am contemplating early withdrawal. Not sure if it is worth it. The total vested amount is $16,517.74

Thank you.

The 20% that they withhold is merely that - withholding. The actual tax you owe on this will depend on your tax bracket, and can't be determined until you do your tax return next year. You pay tax on distributions in the year you receive it, so if this is spread over 5 years you will pay tax (plus penalty) each of those 5 years. For example, if in year 1 you receive one fifth of $16518 , or about $3304, they will withhold $660, so you get a check in the amount of $3304-$660 = $2644. When you do your taxes for 2010 you report $3304 in income, add 10% = $330 as early withdrawal penalty, and show a credit for taxes already paid of $660. Again, whether you owe more or less than $660 is impossible to say. Also, don't forget that depending on where you live you may also have to report the $3304 as income on your state/local income tax as well.