401K cash out vs. IRA

Question

I have the ability to cash out my 401k right now or roll over a portion or all into my IRA account. If I cash my 401k out, I know about the 20 percent penalty up front, along with the 10 percent additional at tax time. What penalites would I have if I rolled over my money into a IRA, then pulled some of it out?

Answer 1

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Answer 2

All other circumstances being the same, you will get more cash sooner by rolling the money into an IRA and then taking the cash out. The 20 percent held out of the 401(k) isn't really a penalty; it's mandatory withholding. You might get it back at tax refund time.

None of this is to say that the idea of taking it out is good for your retirement savings goal.