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Unemployment is a scary thing in this tight job market.It’s tempting to look at that 401k plan you amassed over the years at your last employer as nice cash cushion while you get back on your feet and figure out what to do.Note that you don’t have to itemize your deductions to take advantage of this provision.

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You cannot try it from your 401k, or you will run into the 20 percent withholding and 10 percent penalty issue.

Section 72(t) allows you to avoid the 10 percent penalty by spreading your income from your 401k over the rest of your life expectancy.

Worse yet, this additional 10 percent is calculated based on the entire withdrawal – not just what you receive after taxes.

So you will have to pay part of that penalty on money you never receive. This provision applies to those over 55 who have left their company.

This can provide a nice cash cushion, though you do lose a bit of tax-deferral benefit on any amounts you take as income.

There is one significant trap that may affect the unemployed, however: Any withdrawals you take from a 401k plan could offset unemployment compensation.Before you make any rash moves, though, you should carefully consider the consequences of making such a distribution: You won’t get the full balance.Your employer must withhold 20 percent of your plan balance to send to the IRS to cover income tax on the withdrawal.If you do choose to roll it over, I recommend executing a trustee-to-trustee transfer.You can have the 401k plan send you a check directly, but then the clock is ticking. If you screw up, you will pay taxes and penalties on the whole thing at once.In addition, you will be liable to pay the remainder of any income tax due by April 15th of the year following the tax year in which you make the withdrawal.

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