401(k) Rollover Question?

Your options for rollover are limited to rolling the funds into another 401(K) or into an IRA. (edited for accuracy)

If you receive a check for the balance of your 401(K) and place those funds into an account that is not "tax qualified" (an IRA), the IRS considers you to have taken custody of the funds after 60 days and are going to be liable for a 10% penalty and the entire amount will be added to your adjusted gross income for the year and you will pay income taxes on the entire amount. So you can't really put the funds into a money market account or "some other kind of withdrawal account" without being subject to the taxes and penalties.

Here's a link to the pertinent page of Publication 575 from the IRS website (IRS.gov)

http://www.irs.gov/publications/p575/ar02.html#en_...

Response to your edit;

The IRS allows the early distribution from a qualified plan for a first time home purchase without penalty. You need to read the IRS website publication 590 for the particulars. Here is the pertinent section;

http://www.irs.gov/publications/p590/ch01.html#en_...

You need to roll the 401k account into an IRA Rollover account or you are going to have to pay penalties. If you withdraw and put it into a normal account, you are going to have to pay income tax on all the money in there plus a 10% federal penalty and possibly a state penalty. You should keep the money in a retirement account so that you will have money in the future. Social security does not provide a lot of income.

To avoid tax and penalty, roll it over into an IRA. You get to pick the IRA custodian and investments within it. If you take a withdrawal of the 401(k) account, you[ll pay 10% penalty plus income tax on the gross withdrawal.

You can roll your 401(k) account to another 401(k) but you can't deposit into another account with paying income taxes on it and an extra penalty. that's the object of the 401(k), to give you an exemption from income taxes and in return you agree to keep the account active until you are at least 55 1/2.

Short and simple, rollover to a 401k or IRA or straight-out withdrawal are your only options.

Income taxes apply to all withdrawals. Penalties for early withdrawal may apply in many cases.

Most likely it would be wise to roll the money over to an IRA.

There are many advantages to rolling your 401K over to an IRA. You will have many more choices in which to invest the money. Your former employer will not have any effect on your investments. Many times companies change their 401K plans. Perhaps you simply do not want to have anything to do with your former employer.

Your IRA rollover account doesn't have to be at a brokerage. It can be at a bank, credit union or mutual fund company as well.

in the short term, your best option might be to do nothing - leave your funds where they are, if you can. call the plan trustee and ask if you would be able to do that.