Why wouldn’t I just cash out now, take the huge penalty and go on a nice long vacation? After all, if the gubmint is going to steal it, what difference does it make?
Forget paying the penalties—or the taxes on your 401k. Just quit your job, setup an IRA outside the former employer, roll your 401k into your IRA and withdraw the money in “substantially equal payments” (an annuity) spread over 1 or more tax years. Mortgage all your assets to the hilt and bury the money where no one can find it. Don’t file your tax returns until the IRS comes knockin’ then don’t pay the taxes. They won’t be able to collect because all your assets are mortgaged. If just 10 million or so do this we’d break the beast’s back. Of course we might not like what rushes in to fill the void, but that’s another story.