tax liability?

Question

Is there a way I can find out what my tax liability might be if I take $10,000 from my 401K to buy my first house?

Answer 1

Take your marginal tax rate (taxes you paid divided by Adjusted Gross Income) last year then add 10% to it...multiply that by 10k and that's your tax liability.

Not worth doing...your house is going to appreciate whether you use the 10k as a down payment or not. You won't get a better interest rate either...and the decrease in payment amount isn't worth the devestation that it will do to your retirement account (you'll lose 125k at retirement). Better to do 100% financing then refinance when you have 20% equity in the home to get out from under the mortgage insurance.

Answer 2

Not from the $10,000 alone. Have you thought about borrowing the money from your 401k, then paying yourself back with interest?
That way you don't have to pay any taxes on the $10,000.
Sometimes there is a 10% penalty for early withdrawal. You have to find out from your plan manager if you qualify for an exemption to the penalty.

Add the $10,000 as income to your expected income for this year. Go to irs.gov and look up the worksheet for estimated tax payers and you may get an approximation of how much to pay in taxes on the $10,000 by going through the worksheet.

Answer 3

You should find another way to get your down payment. There are a lot of first time buyer programs. If you take out $10,000 from a 401K, you will only see about half of that, due to taxes and penalties. Any tax preparation office will be able to tell you and should do so for free.

Answer 4

Maybe zero. Some employers allow an option to borrow money from your 401k for exclusively for a home purchase (I know Coca-Cola and PNC did...). That way you avoid the tax liability and interest costs. The down side is that money you borrow is locked and not able to earn income as an investment until you pay it back. It is not a bad way to borrow. Ask your employer if they have such an option.

Hope it helps!!!

Answer 5

a few things:

you can take out a loan from your 401k tax free-but you have to pay it back.

If you just withdraw it, you will be taxed at your regular tax rate. Because it is for a first time home purchase, it will not have a penalty, but you will still be subject to the actual tax.

go here http://www.moneychimp.com/features/tax_brackets.htm
to see what tax bracket you will be in....remember though, if you take out $12,500 so you can get a $10,000 check after taxes, when you complete your return you are going to be taxed on $12,500.

....don't forget state taxes! Those rates depend soley on where you live....you should contact a local tax preparer for advice.

Answer 6

Well, here is another way to look at your 401k. My wife and I are building a house this year and I had the same thought cross through my head. I had around the amount of money that I needed for the down payment in savings, but wanted to save that money for my emergency fund and for a couple of new furniture items needed. However, when you analyze your earning potential of the money in your 401k to your savings, it's a simple decision. Keep your money in your 401k. If you need money for the down payment, use your savings or borrow the cash if you have to. In case of an emergency, then borrow from your 401k.

If you haven't filed for your taxes yet this year, you can also save some money the same way that I did. I found a site that paid all of my filing fees for me. I went through their steps (about 30 minutes) and found out from them that had I owed the IRS, instead of getting a return, that they would have paid for up to $500 of my owed taxes this year. Any of that money would definitely help you with your pending purchase...

Jason