Rolling your 401k into a new savings plan As of 2011, the IRS gives you 60 days to make a choice as to what you will do with the funds from your 401k plan before you start to incur taxes and penalties.
You therefore have to make a relatively quick decision.
The IRS waives the penalty on early withdrawals from 401k plans if you execute a rollover to an IRA or other qualified retirement plan, or you are over age 55 and have left your employer.
For some public safety employees, that cutoff is age 50).
IRAs, or Individual Retirement Accounts, offer a similar list of hardship exceptions to the 10 percent penalty, but with two notable advantages: With IRAs, you can also make penalty free withdrawals to cover college expenses, and to purchase a home.