If yes, will I get a penalty on the money used for the home?
If no penalty, will I be taxed this year on the money I took out?
If no, will I simply pay my 401K back with interest basically paying myself back?
2007-07-15 16:09:34 · 4 answers · asked by John P 3 in Business & Finance ➔ Renting & Real Estate
If you're still working for the employer that sponsors the 401(k) plan you probably will not be allowed to make a routine distribution from the plan.
You cannot remove money from a 401(k) without penalty for the purchase of a home, that is limited to IRAs only.
Many plans DO allow you to take out a loan from the 401(k) as long as you are still employed by the plan's sponsor. Not all do so you'll have to ask. If allowed you'll have to pay interest on the loan but the interest goes straight back into your account in the plan so you're just paying it to yourself. The drawback to this is that if you leave the company that sponsors the plan for ANY reason you must pay back any outstanding loan balance immediately or it will be re-characterized as a distribution and will be subject to taxation as ordinary income plus the penalty if you are under age 59 1/2.
2007-07-15 16:48:57 · answer #1 · answered by Bostonian In MO 7 · 0⤊ 1⤋
If you borrow form your 401K you simply pay yourself back but there is a limit to how much you can borrow at any time and the term of payback so you need to talk to your HR people to find out if you can afford to do that. If you are eligible to withdraw the money it will absolutely be taxed if you contribute before taxes come out. There are hardship loans or withdrawals available with most 401K plans but you have to prove that the only way you can handle this expense is by taking it from your 401K and no other options are available to you. Even then yes, you will be taxed. You should really talk with your HR departnment regarding your specific plan and get the facts from them.
2007-07-15 23:33:28 · answer #2 · answered by Robert P 5 · 0⤊ 1⤋
The penalty exception for withdrawls from a retirement account for a first home purchase only applies to IRAs; not 401k's.
If you take a loan from your 401k, you will not have to pay penalties or taxes but you will have to pay the money back.
2007-07-15 23:15:58 · answer #3 · answered by Wayne Z 7 · 0⤊ 4⤋
You can take out a loan and yes you have to pay it back, usually interest free.
2007-07-15 23:12:02 · answer #4 · answered by Flower Girl 6 · 0⤊ 1⤋