We pulled some cash out of our 401K a few years ago, not a lot. The penalty wasn’t what “hurt” us $$$ wise.
Where you feel the pinch is when the money pushes you into a higher bracket and you pay the penalties, plus the tax on the 401K money at a higher rate, but also the tax on our earnings that year was taxed at a higher rate, so we had to make up that difference too. I know we paid over a third of what we took out in taxes.
So if someone has a sizeable 401K, where they’re going to get hit is on being pushed into a higher bracket. Of course, better now than later if tax brackets go back up.
My understanding is that you can take it out without penalty IF you’re fired or laid off, right?
I suppose if you’re on really good terms with a boss, he/she could fire you for a few weeks.