How should I handle a 401(k) withdrawal?

Q: My job was eliminated several months ago. My family and I have managed to make ends meet since then, but I am now considering a request for my 401(k) funds (about $17,000). Should I request a direct distribution to me for the full amount to utilize for my family’s day-to-day expenses if required or should I process a rollover that would require me to place the funds within an IRA account within 60 days? Chances are good I will have full-time employment within the next 30 days, but I’m not totally sure.

A: Usually the best approach is to open an IRA with a mutual fund company or brokerage firm and arrange for a direct trustee-to-trustee transfer of the money. If you ask for a check, the 401(k) custodian will withhold 20% for taxes, which creates problems if you want to do a rollover.

However, you might want to leave the 401(k) money right where it is if the plan allows it and if you are between 55 and 59 1/2. There’s no 10 percent penalty on a 401(k) withdrawal if you were at least 55 when you left the company. For an IRA, the penalty is eliminated at 59 1/2.