Why is it so hard to withdraw from your 401K? I realize that the purpose of the account is for retirement, but I want to use it for a down payment on a home without having to pay it back.
2007-01-20 12:17:04 · 6 answers · asked by Abegon 2 in Business & Finance ➔ Personal Finance
Three possibilities
1. If any post-tax money was contributed to the 401(k), you can withdraw that without penalty (just the amount contributed - not any interest on that money)
2. Withdraw pre-tax money and pay the penalty.
3. Depending on your age, you might be able to withdraw some money under rule 72(t). The rule is strict and you should consult a financial professional who can properly advise you.
See: http://www.dinkytown.net/java/Retire72T.html
2007-01-20 14:06:31 · answer #1 · answered by huskie 4 · 0⤊ 0⤋
That's a big mistake. It's very tempting to do that, but actually you will get tax penalties and essentially both make your house more expensive to buy, and your future pension much less.
Find some other way to finance your house - you can always stop paying into the 401K for a while, and save the contributions toward your house deposit - that at least doesn't have any tax implications.
2007-01-20 23:50:12 · answer #2 · answered by Anonymous · 0⤊ 0⤋
there a restrictions with using 401K money before retirement age becaue the money has not been taxed. when you withdraw it early you will be taxed on it. you can use it for down payments on houses but you do have to pay it back and you do have to claim that on your taxes or the irs will give you a whole new set of problems.
2007-01-20 20:24:36 · answer #3 · answered by Aaron 3 · 0⤊ 0⤋
They make it difficult on purpose. Look the government needs money to continue to function. They, however, recognize that the individual also needs to save so that they aren't out on the streets when they get old. So, to encourage saving for this they allow people to defer the taxes on those savings. They are not being super benevolent though...they do not let you pass that money on tax free to your heirs and they tax you on a whole lot more than you put in....income that you likely wouldn't have saved had you not had this vehicle. But, if you take it out early you defeat both purposes..you don't have as much $$ and they don't have as much to tax. So, they make up for it by hitting you with that extra 10% tax for early withdrawals.
As for taking it out...you can. But you'll get hit with that 10% penalty AND if you're age 35 or less that 10k would have grown to 100k by the time you hit age 65. And no, contributing more down the road to make up for it doesn't work. Once you take it out, it's gone! Better to take a loan and pay it back within 5 years. At least THAT minimizes the impact.
2007-01-22 12:56:50 · answer #4 · answered by digdowndeepnseattle 6 · 0⤊ 0⤋
You can take money out of your 401K and not pay it back, but as I understand, you will have to pay taxes and a fees for doing so.
2007-01-20 20:24:56 · answer #5 · answered by hollyberry 5 · 0⤊ 0⤋
It is designed to be used for retirement, and most people will need it then.
2007-01-20 20:25:56 · answer #6 · answered by Nelson_DeVon 7 · 0⤊ 0⤋