Need advice on 401K withdrawal and pension

L1: Need advice on 401K withdrawal and pensionI have been on LongTerm Disability for the last 11 months and have one more month to go until I am cleared to return to work. My position was filled in that time and I essentially am terminated upon completion of the LTD. I don’t believe there will be positions to apply for at my former employer so am consequently looking elsewhere.
I turn 50 in November 2009, was at the former employer for 17 years and do have a 401K and a pension benefitas well. My LTD was paid with after tax dollars so to the end of June I will have had no taxable income.
The questions I have relate to taking a complete withdrawal of funds from my 401K and, if and when, to elect to take a lump-sum payout on the pension.
Because this year I may have the lowest taxable income that I may have for some time I thought this might be a smart time to get the money out of the 401K. (The taxable portion of the $80K in the 401Ktotal might never have a lower rate applied to it than this year.) We did claim medical expenses on last years tax return above 7.5% during my disability, and likely will again this year, so might I be able to use the medical exemption to avoid the 10% penalty IRS would want to collect? If this is sound reasoning please let me know. Is there a better approach? I honestly would rather have the money under my control with easier access than is available in a 401K account.
As for the pension… it is a lump-sum payment of about $89K. The company is a solid Swiss based pharma with a fully funded pension planso there is probably little chance of having financial problems that could jeopardize the pension fund…. and my payout.
Does anyone have advice as how I might handle this pension money? Keep in mind that the conditions for a disability related retirement from the company required a complete and total disability for early retirement… for which I did not qualify.
If I would not be able to find a position soon enough, or at all,that replaces enough income to continue to pay my mortgage…. having the monies from the two funds available would possibly be able to payfor housing (mortgageassistance or even paying cash for a smaller house and being debt free mortgage wise).
Any thoughts and/or advice would be appreciated.
Thanks all.2009-05-28 02:31, By: Soonerfan, IP: [204.8.8.7]

L2: Need advice on 401K withdrawal and pensionI am out of town, and do not have access to my references. However, it is possible that the medical expense exceptions to the 10% penalty may apply only to IRAs, not to 401-k accounts. One of the exceptions has to do with health insurance premiums when unemployed, which would be for July and future in 2009. ( By the way, you would also qualify under the new COBRA regulations for 65% subsidy from the government towards your health insurance premiums for the next 9 months. Further, the first $ 2,400 of unemployment compensation would be tax-free.)2009-05-28 16:23, By: dlzallestaxes, IP: [208.111.238.22]