I never contributed because I did not know it existed until I left that job. You state in your question that you never made contributions to your 401(k) account.
I cashed it out to pay off debts and they took 60% and told me the rest had to go back to the employer. Employers only match based on contributions of the employees.
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Now onto 401(k) distributions, penalties and solutions for you.
This 10% tax is in addition to regular income taxes.
You can avoid this additional tax penalty if you meet certain criteria, but you cannot avoid including your retirement withdrawal from your taxable income.
See the IRS document 401(k) Resource Guide - Plan Participants - General Distribution Rules for more information on distributions.
Let us say you leave an employer, and your former employer’s 401(k) administrator wants to close your account and give you a distribution.
Therefore, if you did not contribute then it is likely that neither did your employer.
Either your employer did not create an 401(k) for you and instead enrolled you in a private pension plan, or if you had a 401(k) account and was not aware of it, the administrator miscalculated the penalty and taxes for your distribution. Generally, however, unless you qualify for hardship distributions from a 401k plan, it is very expensive to liquidate 401k funds, and therefore, if you are looking to solve a debt problem you may want to look elsewhere.
In general, if you withdraw money from a traditional individual retirement account such as a 401(k) or other qualified retirement plan before you turn age 59½, you are subject to penalty of 10%.