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You can roll your 401K into an IRA as long as your adjusted gross income for the year falls under $100,000. Or, to save on taxes if the shares your company bought have risen in value, you can put your money into a brokerage account and pay the taxes and penalty. The taxes you pay will be based on the purchase price of the shares instead of their current (higher) value. Keep the shares in the brokerage account for 12 months, and then sell them, paying the capital gains tax, which will be somewhere between 8% and 18%. Obviously, this is not a sure thing: if your stocks haven't earned that much money or the amount in your account isn't big enough, you may wind up going to a lot of trouble for very little gain. Get together with your tax advisor and do the math before going through all those shenanigans. Then, if the money you make on the transaction is worth the effort, great. If not, go with a less elaborate plan.
If you decide to cash out your 401K, your age matters. People under 55 years of age are charged a 10% penalty as well as state and federal taxes, except in certain hardship cases involving death, disability or divorce. In some cases, it may be possible to withdraw from the 401K by arranging to have regular monthly withdrawals calculated based on your life expectancy. Hardship exceptions vary from plan to plan, so check with the plan administrator to learn about your options.
If you are 55 or older and lose your job, you can cash out your 401K without penalty.
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