401K WITHDRAWAL AT 55

LEFT JOB JUNE 2014, STARTED NEW JOB JUNE 2014 NOT ELEGIBLE FOR 401K UNTIL ON JOB 1 YEAR.
TURNED 55 JANUARY 2015 – DUE TO HEALTH ISSUES LEFTJOB FEB 2015. WANT TO TAKE 401K DISTRIBUTION TO PAY OFF HOUSE/DEBT. WILL I HAVE THE 10% PENTALTY? 401K WAS WITH PREVIOUS JOB LEFT JUNE 2014 AND COULD NOT ROLL OVER TO NEW JOB TIL 1 YEAR SERVICE, BUT LEFT FEB 2015.

Terry Says:  Well, there are provisions that would let you take income –in substantially equal payments (Rule 72T) — and not pay a penalty if you take the payments before age 59-1/2, and have left your job.  But that won’t help you get a lump sum to pay off your debt.  My suggestion is to wait until age 59-12 — although if you take the money out in four years you’ll still pay taxes, and lose all that future tax-deferred growth.  That would be a shame.  Isn’t there any way you can earn some money in the intervening years, despite the health issues?  I also suggest you contact the National Foundation for Credit Counseling at  800-388-2227 and ask them to work with you to help you deal with your creditors.  They can review your total picture and might have some other specific ideas.  You can trust them.