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What is the process of withdrawing all monies from a 401k account?

If a person is in the U.S. on an H1B visa, lives with a dependent wife (H4), worked for about 3 years (4% employer matching contributions into 401k), is laid off due to budgetary constraints, and the person wants to return to home country — then how can one go about getting all of the 401k money out, paying the least in penalties as possible?

Also, is it true that if the 401k monies are withdrawn in the month of January, since the total taxable income for that year is lesser than the limit required for taxable income, the person withdrawing ends up paying no taxes on the funds withdrawn from the 401k?

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  • The persons home country is India, but he is returning to Australia as a Permanent Resident to continue his career over there. Half of the funds (about 5k ? after taxes and penalties)will go to home country to support family and the rest I suppose he will be taking to Australia
    – happybuddha
    Jan 13, 2014 at 18:15

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is it true that if the 401k monies are withdrawn in the month of January, since the total taxable income for that year is lesser than the limit required for taxable income, the person withdrawing ends up paying no taxes on the funds withdrawn from the 401k?

Not exactly. You will still pay the 10% penalty on the withdrawal, that doesn't change regardless of the amount or whether it is otherwise above or below the exemption limit.

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    Ok. And would you be able to tell the steps to withdraw the money ?
    – happybuddha
    Jan 13, 2014 at 20:26
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    @happybuddha 1. call the 401k company 2. do as they say. 3. file tax return and pay get the refund of the withheld tax/pay additional tax if not withheld enough. Note that the tax will be withheld, regardless of your actual tax rate, at at least 20%.
    – littleadv
    Jan 13, 2014 at 21:25

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