There's a diary at the top of the rec list, which recommends that you close out your 401K and invest the money locally:
The best way to protect everything you hold dear, the most patriotic act you can make for your country, is to stop contributing to your 401k and IRA. If you really do love your country you would move your life savings into a local credit union or regional bank. You would take the money out of the stock market and away from the oligarchs that have done so much damage to our nation.
The diarist is arguing that local investment through a credit union is a more socially responsible investment. It's a good argument. However, doing as the diarist suggests can expose you serious tax liabilities. There are other ways to responsibly invest your money.
NB: I'm not an accountant, tax attorney or an investment adviser. You take my advice solely at your own risk.
401K withdrawals are considered taxable income. So, if your 401K is large enough, then withdrawing all your money from it could push you into a much higher tax bracket on your 2009 taxes.
Additionally, except for exceptional circumstances, early withdrawals from a 401K are subject to a 10% penalty tax.
For example, if you're making about 30K/ year, then you're in the 15% tax bracket. If you've got a 401K balance of about 5K or greater, then most of your withdrawal will be in the 25% tax bracket and you'll be paying the 10% penalty on top of that. This means that your tax liability on your 401K withdrawal will be more than double your usual tax rate: it will go up to 35%.
Finally, you would also lose all the advantages of tax deferred investing.
I'm going to give you some socially responsible investment alternatives, that don't hit you with a big tax increase and also let you continue to take advantage of tax deferred investing.
#1. If you want to invest your money locally through a credit union, then find a CU that can act as your IRA custodian and set up an IRA there. After you've set up an IRA at that CU, then do a qualified rollover of your 401K into that IRA.
(IRA = Individual Retirement Account)
I'd also recommend that you make sure your CU that has a good rating here: Bank, Thrift and Credit Union Ratings
#2. Investing locally through your credit union severely restricts your investment options. You will definitely be able to buy CDs (with that money being lent to local businesses). You might be able to buy locally issued municipal bonds (which are hopefully paying for local infrastructure and school improvements). It might also be possible to buy shares on local businesses. Every IRA custodian is different and they offer different investment choices, but these choices are usually very limited.
If you want more investment options, then you should consider opening an IRA at Fidelity and then doing a qualified rollover into your new Fidelity IRA. Yes, Fidelity is a major player in the 401K industry. Fidelity also offers the greatest possible flexibility for investing your money, you're not restricted to investing in the Fidelity fund families. Through Fidelity, you can invest your IRA in socially responsible mutual funds.
Before you invest in a socially responsible mutual fund, you should exercise double due diligence. Carefully read the fund's prospectus and determine if the fund's investment choices are fiscally wise and socially responsible.