I have some savings in 401K and I was interested in using this money for a down payment on a condo. Is this a good idea? It's the only money I have for savings. Also, are you subject to taxes if you withdraw money for this reason?
2006-12-17 02:27:19 · 5 answers · asked by public-opinion08 2 in Business & Finance ➔ Renting & Real Estate
You can do it, and it may be a great investment or an awful one. That's up to you. If you take your advice from this forum, you are more likely to get the short end. HIRE A CPA! Don't go to your stockbroker/financial advisor, becuase they have no interest in you leaving them and their fees to invest in real estate. A qualified CPA will help you.
Good Luck!
2006-12-17 02:36:17 · answer #1 · answered by turbiville 1 · 0⤊ 0⤋
That's not an allowed reason for an early distribution from a 401k program. Most plan administrators will only allow early withdrawal for hardship reasons and purchase of a home does not qualify as a hardship reason.
Hardship distributions are generally limited to the amounts you have contributed, not the accumulated earnings. The amount of the distribution is fully taxable as ordinary income + a 10% penalty for early withdrawal. For most folks, that will be 35% right off the top.
If you are confident that you will remain with that employer indefinitely then a loan against the 401k MIGHT be an option. Keep in mind that if you leave that job, the entire balance of the loan is due and payable immediately. If not paid immediately the remaining balance will be taxed as ordinary income + the 10% penalty for early withdrawal.
Early withdrawls from qualified retirement plans are normally a TERRIBLE idea. Consult with a tax professional -- a tax attorney or CPA, not a store-front tax preparer -- for advice specific to your situation and an evaluation of all of the costs.
2006-12-17 05:56:41 · answer #2 · answered by Bostonian In MO 7 · 0⤊ 0⤋
You should receive a 1099 showing the withdrawal as income. There will/should also be a 10% penalty paid on the original withdrawal amount (this is also income) as well as the with holdings (usually 20%). If the withdrawal was done right, the 1099 should be for about $28,000 or thereabouts. Obviously, you add the 20% with holding into the your other with holdings. If your tax bracket is above 20%, it will cut into your return, otherwise, you will get a bit more back. If the tax and penalty were not with held, you may owe the government money. As for your rental, it is probably considered passive activity, which means all you can do at this time is write off the income (rent) you gained from the property. Any loss can be carried forward. Just a suggestion, but with all that is going on, you probably want to see a tax professional.
2016-05-23 01:55:51 · answer #3 · answered by Anonymous · 0⤊ 0⤋
There is a new letter ruling from the IRS that states that you will be subject to the tax penalty if you withdraw that money. Their logic is that you control the investment instead of someone else like in the 401K
2006-12-17 02:37:05 · answer #4 · answered by newmexicorealestateforms 6 · 0⤊ 0⤋
Yes. It depends on your plan. You can get the money as a hardship and will not have to pay penilties on the money or you can borrow the money from yourself and pay it back then you will have this money when you retire.
2006-12-17 04:05:12 · answer #5 · answered by deletmor 1 · 0⤊ 1⤋