Withdrawing Money from Your 401(k)s Between Jobs

A person between jobs cashes out around $14,300 from his/her 401(k). It might seem harmless, especially if you need the money for a short-term financial emergency, but it can have serious consequences.

For instance, if you take money out of your 401(k) before you turn 59 ½ you might have to pay 10 percent tax penalties for early withdrawal and the money is considered gross income. More than that, your 401(k) plan administrator will retain 20% of your balance to cover any applicable federal and state income taxes.

Bottom line: you’re much better off rolling over your 401(k) to make sure you preserve tax benefits and avoid penalties.