Some things to consider when doing your math:
- Even if total income is low, you will probably pay normal income tax on much of it. If the 401(k) is your only income for the year then you won't get things like the Earned Income Tax Credit to offset more than the standard deduction. Unless there are other things to offset this (married filing jointly, worked for 1/4 of the year with horrible pay, etc.), keep this in mind.
- Penalties apply no matter what your income! 10% must be payed.
- Some states, such as California, also require you to pay them a penalty too! Look this up (e.g. California is 2-4%, depending on income lvl)
Of course, that's just the math. It's also important to consider your future. There's a saying in finance: "never lose your principal." Your principal, the cash you have invested, is literally going to the office every day and WORKING so you don't have to. The more of them you can collect, the less work you need to physically do in order to trade time for money, and the freer you become...
If you take them out of the office and spend them on things, they stop making you money...
So if you can find any way to supplement your income (e.g. working odd jobs in the morning while looking for work in the evenings (or vice-versa... lots of bars have odd jobs...)), then you will keep that principal in there making you money, while you also add money on the side...
Obviously there are always mitigating factors. For example, if you are living
exceptionally frugally, then it will be able to last you a long time, and amount you lose in penalties will be more than made up for by the longer time-horizon you have to focus on your current task. But if there's a second car, 1+ night a week out to dinner for convenience, multiple smartphone plans, a small city-trip next month because you *just need* the R&R... then pulling out the money could be shooting yourself in the foot.
Full disclosure: I raided my 401(k) when I was younger. Possibly the best (and worst!) financial decision of my life. Best, because the investment in time meant a chance to meet the woman I've been in love with ever since. Worst, because I was wasteful with my spending then... if I had instead tried to do side work during the time off, then I would have found myself still 1/3 to FI and ready to buy a house the instant I got back to work...
Ultimately, raiding your 401(k) isn't so much about how much you pay in taxes, but whether or not it's worth it to stop using that money to make money. You spent years collecting those dollars here and there, scrounging to save a tiny bit each month... once they disappear, it's much harder to replenish than you think...
~ DaftShadow