I owe IRS taxes. I have Parkinson's and I will be terminating my
employment in about one month.  Can I cash in my 401k and pension?  If
so, what are the legal consequences if any.  I am aware that I will
have to pay taxes.  I need to pay off bills to be able to live from
month to month and move to where my son is.

As you state, you will have to pay taxes at ordinary income rates if
you cash in your 401(k) and pension.  A lot depends on your age and
whether or not your Parkinson's disease is disabling.  The
determination of whether or not it is disabling is made by the Social
Security Administration in the event you apply for Social Security
disability benefits.

Here are some rules that may apply to your situation:

Your pension from your employer is a completely separate entity from
your 401(k) from a taxation standpoint.  If you have not reached the
plan's definition of retirement age, your employer may not allow you
to "cash in" your pension early and receive a lump sum.  However, the
pension plan may have a provision for an early distribution if you
become disabled.  You will have to consult with a benefits
representative from your employer to understand what options exist
with respect to obtaining distributions from your pension.  Generally,
lump-sum distributions paid directly to you are subject to mandatory
20% withholding by the employer.

Your 401(k) distribution will be subjected to an additional 10% tax if
it is withdrawn early.  Generally, this means that you take
distributions before reaching age 59 1/2.  However, there are certain
circumstances under which you do not have to pay the penalty.  You do
not have to pay it if you are totally and permanently disabled.  You
are also not subject to the penalty if you take distributions "... as
part of a series of substantially equal periodic payments over the
life expectancy of the owner or life expectancies of the owner and the
beneficiary.... [Y]ou must separate from service with this employer
before the payments begin for this exception to apply."  Also,
distributions made after you leave your employer, if you leave in or
after the year you reach age 55, are also not subject to the 10%
penalty tax.

Sincerely,

Wonko

Source: "Topic 558 - Tax on Early Distributions from Retirement Plans"
Internal Revenue Service http://www.irs.gov/taxtopics/tc558.html

Additional reference: "Topic 412 - Lump?Sum Distributions" Internal
Revenue Service http://www.irs.gov/taxtopics/tc412.html

---

Request for Answer Clarification by grandmadonna-ga on 08 Jun 2004 13:57 PDT

Are there any legal ramifications as far as the IRS is concerned?
I.e., is it a felony, etc.

---

Clarification of Answer by wonko-ga on 08 Jun 2004 14:55 PDT

Not at all.  You just might have to pay extra tax.

Wonko