[terrc]

I have not left my job but need to close out my 401k and take an early distribution. It that possible

[ebaines]

It depends first on whether you are using the money for one of the "hardship" purposes as defined by the IRS. These are:

1. Expenses for medical care previously incurred by the employee, the employee's spouse, or any dependents of the employee or necessary for these persons to obtain medical care;
2. Costs directly related to the purchase of a principal residence for the employee (excluding mortgage payments);
3. Payment of tuition, related educational fees, and room and board expenses, for the next 12 months of postsecondary education for the employee, or the employee's spouse, children, or dependents;
4. Payments necessary to prevent the eviction of the employee from the employee's principal residence or foreclosure on the mortgage on that residence;
5. Funeral expenses; or
6. Certain expenses relating to the repair of damage to the employee's principal residence.

If none of these exceptions apply then whether you can take a withdrawal depends on your age (are you over age 59-1/2?) and the rules for your specific plan. Most plans don't allow distributions to active employees, but some do. Keep in mind that in general it's more advantageous to take a loan from your plan than it is to take a distribution - much better tax treatment, and no early withdrawal penalty.

If you do decide to take a withdrawal you will owe ordinary income tax (federal and state/local as appropriate where you live) and a 10% early withdrawal penalty if you are under age 59-1/2. The 10% penalty can be avoided if any of the following apply to the distribution:

• From a qualified retirement plan after your separation from service in or after the calendar year in which you reached age 55 (age 50 for qualified public safety employees).
• Made as part of a series of substantially equal periodic payments beginning after separation from service and made at least annually for the life or life expectancy of the participant or the joint lives or life expectancies of the participant and his or her designated beneficiary. (The payments under this exception, except in the case of death or disability, must continue for at least 5 years or until the employee reaches age 59½, whichever is the longer period.) This is known as a section 72(t) withdrawal).
• Distributions due to total and permanent disability.
• Distributions due to death (you are the beneficiary of a deceased plan participant).
• You have unreimbursed medical expenses that are more than 7.5% of your adjusted gross income – up to the amount allowed as a medical expense deduction.
• Distributions from a qualified retirement plan to an alternate payee under a qualified domestic relations order.
• Distributions due to an IRS levy of the qualified plan.
• To reduce excess employee or matching employer contributions, or to reduce excessive elective deferrals.
• Distributions to reservists while serving on active duty for at least 180 days.