If I'm buying my first home, can I withdrawal from my 401(k) with no tax penalty?

Question

I've heard from people that I can and I can't, but want to reference something definitive.

Answer 1

If you are under the age of 59 1/2, you cannot withdraw funds from your 401(k) plan to purchase your first home without being subject to a 10 percent additional tax on early distributions from qualified retirement plans. However, depending on the rules for your 401(k) plan, you may be able to borrow money from your 401(k) plan to purchase your first home.

More info: http://www.irs.gov/faqs/faq-kw7.html

Answer 2

This is exactly how we purchased our first home BUT the bank holding our 401(k) gave us a low interest loan against our 401(k) so that we didnt actually withdraw it from our account. We had to get the plan administrator's approval to take this money out and a down payment for a house was one of only 3 things you could take the money out for; and then only 50%. It worked out well for us. My hubby's (ex hubby now) money stayed in his account earning more money and we paid back the loan to the bank and got our house with no tax penalties!

Answer 3

you could not dodge the tax. you should pay the ten% penalty except you both roll it over right into a rollover classic IRA, or wait till you're fifty 9-a million/2. you could not do what you want to do. as a lot as $10k could be withdrawn with out penalty from an IRA, not a 401K, for a down price on a first living house it is your position of living. which could be what you examine and are taking into consideration.

Answer 4

It depends on your employers 401k Rules.

Yes, the government created laws which allows for a withdrawal to purchase your first home. But your 401k plan does not need to offer this as a service.

There are also 2 ways of taking the money out:
1) As mentioned before, you can take out the money and repay it into the plan over time (ask you plan manager about what that length of time is)
2) You can take it out and not repay it.

Using a 401k has advantages, such as that you are more easily approved for a mortgage, as you are not touching (or solely relying on) your regular savings or investments for your downpayment. Keeping extra money in these accounts lets the bank know you have money in reserve to pay for unexpected expenses such as repairs to the house, or mortgage payment if you should lose your job and not have a source of income for any period of time.

But beware of some of the pitfalls.

If your plan requires you to repay your loan to the plan, and you decide to move to another company or get fired, you are responsible for coming up with the entire lump sum of what you borrowed within a short period of time (depending on the plan this can be as short as 1-3 months). So if your job isn't 100% stable or if you think you may want to leave anytime soon, going with the 401k is not an option.

Taking money out and not repaying it is not a good thing either.... for some people (myself included) that is their main source of income for retirement. The more money you put in at the begining of the plan, the more time it has to collect interest and grow into a larger sum. Taking out say $50,000 will cost you hundreds of thousands of dollars in lost money 30 years from now.

Although I have a Roth IRA, that won't be enough for retirement. I am thinking about purchasing my first house in 1-2 years, and my 401k will be used. But I will try to do everything in my power not to deplete it just to afford the house.

Good luck.

Answer 5

The answer to this question depends on the company which handles your 401k. Mine was with Prudential and the plan I'm in allowed me to take out up to 50% of my 401k's current balance. Remember, though - that was under my 401k's plan. Yours may very well be different. Calling the company who handles your 401k will help you with this tremendously.

Answer 6

tonalc1 is right.

Similar situation happended to me.
http://nobubble2006.blogspot.com/

--------------

Different subject:

Nothing is absolute, but housing market is very likely undergoing a correction and this is only the beginning. Some say this would be a soft landing (0 to 10%). Some say a big crashing is coming (10 to 20%).

http://money.cnn.com/2006/08/24/news/economy/newhomes/index.htm
http://money.cnn.com/2006/08/23/news/economy/homesales/index.htm

Answer 7

ASK THE JOB. THEIR ARE DIFFERENT RULES CONCERNING HARDSHIPS. THEY MAY ALLOW YOU TO MAKE A LOAN AGAINST YOUR 401 K.

Answer 8

No matter what answer you get on this website, it will definately not be definitive. Maybe your should call the customer service number for your 401(k) provider first.

Answer 9

you bet u can and that is great if u have enough money in your 401k to do so good 4 u.and what is cool is u pay yourself back.Out of each check they will take the payment to pay yourself back,