has anyone ever heard of not being able to cash out of a 401k unless you quit?

Answer 1

Yes, I worked for an employer once who had the 401K "protected" like this. You could cash out for one of four reasons...
1. down payment for a house
2. to pay medical bills
3. forgot this one-think it is to avoid foreclosure or eviction
4. and forgot this one
BUT, I think they have to be able to allow you access to your money if you can prove that you would meet the above qualifications. Ask a rep from the company who manages the 401K.
Also, if you are married, your spouse will have to sign the withdrawal papers b/c of the Safe Harbor laws.
AND, you will have to pay pretty steep penalties.

Answer 2

.Question 16: I am currently in a 401(k) plan and made an inquiry about removing my vested contributions and rollover money from the plan. I was told that I cannot withdraw my money unless I am terminated or qualify for a hardship. Is this correct?
Answer: Yes, what you are being told most likely is correct. 401(k) plans, by law, can only make distributions of 401(k) contributions following certain events listed in the Internal Revenue Code, including retirement, attainment of age 59½, "separation from service" ("severance from employment" beginning in 2002), financial hardship, and death or disability. Because of these legal restrictions, many 401(k) plans are designed so that no distribution is available until a participant terminates employment or has a hardship. As a participant in the plan, you should have received a copy of the summary plan description (SPD). Your copy of the SPD should give you additional information on when a distribution is available to you.

Answer 3

Although you may be able to borrow out of your 401k during your employment, it probably violates IRS regulations to take a 'distribution' from your 401k until you are retired.

Answer 4

Yes in most cases, I've always known it to be a rule.