I was told that if you take out your 401k early and the amount is under $10,000 you don't have to claim it on your taxes and you only pay a 10% penalty on the amount. Is this correct?

Most money deposited in a 401k is before taxes, so if you withdraw it, taxes will due, and if your under the age of 59 1/2 there will be a penalty for early withdrawal. You can moved it to another 401k or IRA directly without it coming to you, but if you touch it, taxes and penalties will apply. Hope this helps you.

So there is no limit on the amount.. you still have to claim it.

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Originally Posted by Jessica114

So there is no limit on the amount..you still have to claim it.

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Correct - any withdrawal (no matter how small) must be reported as taxable income UNLESS it's a return of after-tax money (which is a rare event). The 401(k) plan administrator should automatically withhold 20% of the withdrawal amount for federal tax. Depending on where you live you may also have state/local income tax to pay. And as already noted by Dr1757, if you are under 59-1/2 in most cases you also have to pay the 10% early withdrawal penalty.

Thank you