Can I borrow from my 401K for a first time home purchase, even if I left the company last year?

Question

To clarify, I don't mean taking an early withdrawal and paying the 10% penalty, I mean borrowing. You pay it back. By law you can borrow for certain life events...medical, first home, etc. But if you leave the company...?

Answer 1

I think you can, but I don't think you should.

Answer 2

First, your reason for borrowing doesn't pass the hardship test in which you have to face eviction or foreclosure before you could borrow from your 401k.

Second, you can't do it without tax consequences if you already LEFT the company and is not currently employed. The rules stipulate that you have to roll over to another employer-sponsored account before new loans be approved as old loans from previous employer has to be paid back in full or a 10% penalty (plus withdrawals taxed as ordinary income) will be imposed.

Third, if you are unemployed and have rolled your 401k into an IRA, then the rules stipulate that you can't buy personal property using IRA funds period.

Under these scenarios, you are out of luck.

Answer 3

The policies in regards to borrowing from a 401k are set by the employer and vary from plan to plan. Because you are no longer with the company, more than likely you can no longer borrow from the plan. You can check with their Human Resources dept.

If you want to use the funds in your 401k plan for your down payment, the IRS will waive the 10% penalty for a first time buyer. Because the money in the 401k is pre-tax money, when you take the money out, you will have to pay ordinary income tax on the amount withdrawn.

Check out http:///www.irs.gov
I would also recommend consulting with a tax professioanal or a financial advisor.

Answer 4

yes but you will loose your *** in penalties and interest loss as well as uncle sam will take a huge chunk.

Answer 5

Yes you can.. congrats on buying the house