This is not a wise option for most investors. Taking out the money pre-maturely (before age 59½) results in
serious tax consequences. Your previous employer is required to withhold 20% of your cash for federal taxes. The withheld 20% is used to pay the taxes you owe for
your federal taxes; however, you might have to, depending on your tax bracket, pay more than 20% when you do your taxes for the year you withdrew.
Advantages with this option:
You can get immediate access to your money.
You can use the money for other purposes (for
example, paying off expenses or investing in other options).
Disadvantages with this option:
20% of your money will be withheld for federal taxes.
Additional 10% penalty for early termination will apply if you are under 59 ½ years.
