way off topic.. tax question

burdette

Before I plunge into the IRS website, thought I'd ask here... anyone know if you can pull money from a 401k to buy a house and NOT have to pay the penalty?

We moved recently to KC and took a rental duplex, thinking we'd scope out the area for a year and then buy. Due to some changes, we're now on an approximately 60 day window to buy a house. I'm going to pull the money to use for the house regardless of the penalty/taxes, but thought I'd heard *somewhere* that there were circumstances in which you didn't have to take the ten percent hit.

Demiurge

Try your best not to touch the 401k money till retirement. You'll regret it. I know i'm not answering your question, just giving some friendly advice.

disneyjoe7

I think that is one that would not get a penalty. The 401k people could tell you better, and they are the one's who will pull out the tax to send to the IRS if required.

PolkThug

I did that with my IRA rollover and did not pay a penalty. I don't know about 401k.

spyderman

I'm pretty certain the answer is no, unfortunately the voluntary purchase of a home doesn't qualify as a "heavy and immediate financial need".

But I'd check with the company that's managing your 401k plan, i.e., Fidelity or T. Rowe Price...etc.

Not that this is the best strategy, but your employer may allow you to borrow against your 401k. Some do, and some don't. Each company has slightly different rules.

Good luck!

PolkThug

I assume the 401K is from your previous job. I believe you can 'roll it over' to an IRA. Then you can take a distribution for a first time home buyer. This is a little gray because it would be your first home in Kansas, but you have also owned a house before in a different state. So, I guess... ask a pro.

Have a good weekend!

Early B.

It's much greater than a ten percent penalty hit. Once you pay taxes, fees and penalties, you're left with about $0.60 on the dollar.

There are lots of alternatives to pulling out money in a 401K to buy a house. I wouldn't do it. Millions of people buy homes every year and they don't do this. Use OPM -- other people's money!

brettw22

Depending on your plan, you can take a loan out on your 401k and repay yourself back the interest. It's gonna hit your account heavy with what you're missing out on, but it's an option to at least have as a last resort.......

Demiurge

Originally posted by Early B.
It's much greater than a ten percent penalty hit. Once you pay taxes, fees and penalties, you're left with about $0.60 on the dollar.

There are lots of alternatives to pulling out money in a 401K to buy a house. I wouldn't do it. Millions of people buy homes every year and they don't do this. Use OPM -- other people's money!

Exactly...That's why i'd never do it. You're just **** yourself in the long haul. All of the compounded interest saved up till your retirement will be gone if you rob your 401k. It's your right to do it, but i'd strongly advice against it.

Then again....it sounds as if you NEED it. If you don't....try to find other alternatives as Early B. has said.

PolkWannabie

Assuming one doesn't take forever to repay the loan from the 401k, this would be at least somewhat offset by the increase in equity in the house that one would gain by being able to buy it sooner.

If your young the best advice I can add is buy all the home you can afford. Your income will most likely increase in years following the purchase making the mortgage easier and easier to pay while providing the greatest equity growth and single family homes are still one of the best investments out there. Baring an economic depression this won't change.