How to Cash Out a 401k

A 401k is excellent investment vehicle that allows a person to save for retirement. However sometimes there are situations that arise where an individual must cash out his 401k to payoff other financial responsibilities. This process is relatively straightforward but is a last resort due to the penalties incurred during this transaction.

Instructions

1. Talk to the human resources department at the company with which you had or have the 401k. Each company has a distinct process for cashing out the 401k. The human resources department should have all the information necessary to cash out the 401k. If the 401k is an individual account, contact the company where you opened the 401k.

2. Decide the percentage of 401k funds that you want cash out. It's an option to cash out only part of the 401k and then rollover the rest into another fund. If you decide to totally cash out the 401k fund, be sure that fund administrator understands that this is your intention.

3. Calculate the cost of the cash out. Not only is there a 10 percent penalty for cashing out a 401k before you are fifty-nine and a half, it's also subject to state and federal income taxes. This will alter the final cash out figure significantly.

4. Submit the cash out paperwork to the 401k administrator or the designated department. You can decide whether you want a paper check or if you want the fund transferred electronically to a personal account. The 401k administrator usually subtracts out the ten percent withdrawal penalty prior to payment, while the federal and state taxes are your responsibility.

5. Verify that the amount of the 401k cash out is correct when you receive the check or electronic transfer. If it is not correct, ask the 401k administrator for explanation of the discrepancy.