Resist the temptation to make the withdrawal from your 401K. Many people are doing this these days. I know you may desperate. Especially, if you are falling behind on your mortgage payments or are trying to avoid foreclosure. Do whatever you can to avoid taking a withdrawal or a loan. If you make a withdrawal you will be hit with a 10% penalty for taking money out if you are under 59 1/2. Then a few months later chances are you will find yourself right back in the same hole you were in before. But this time all of your 401K money will be gone and you will undoubtedly fall behind on your mortgage again.
A 401K loan can be just as risky. If you get laid off you will have to pay back the loan within a few months. Unemployment continues to go up and is already at a 26 year high. So, if you get laid off and can't pay back the money, you will most likely have a tax problem. The loan will be treated as a withdrawal and you will be paying tax and a early withdrawal penalty of 10%. A loan also has drawbacks because the markets may rally at any time while you have an outstanding loan, which you are missing an important opportunity to recoup your losses.
Also, you should know any money that you have in a 401K or IRA is protected if you ever file for bankruptcy. That money is yours no matter what.
I think you should search in ever nook and cranny of your financial life and find other income sources for making your mortgage payments.
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