It looks like I’m going to need to take money from my retirement savings to make a down payment on a house. Which is better to tap for a down payment — a 401(k), a Roth IRA or a traditional IRA?
If you qualify as a first-time home buyer, you can withdraw up to $10,000 from your IRA to use as a down payment (or to help build a home) without having to pay the 10% early withdrawal penalty. However, you’ll still have to pay regular income tax on the withdrawal.
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To avoid the penalty, you can roll a 401(k) to an IRA so that you can take advantage of the home buying exemption that first-time buyers get when they withdraw from an IRA (more on that below). However, realize that you can’t roll the 401(k) over if you are still working for the employer, but you can perform a rollover from an account with a.
Using Your 401k for a Down Payment. There’s no specific penalty exemption for home purchases when you pull money out of a 401k, so any money you take out will be classified as a "hardship exemption." You’ll be assessed a penalty of 10% on the amount withdrawn and you’ll have to pay income tax on it as well.
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First Time Home Buyer 401(k) Withdrawal. By: Mark kennan. updated july 27, 2017. Money can be removed from a 401k plan for a home down payment either through a 401k loan or an early withdrawal.. 401k plan loans must be repaid within five years, but loans used for home down payments can be.
The money you withdraw from your 401K must be used specifically for the down payment. You may only withdraw the amount you need for the down payment – you cannot just keep the leftover funds. For example, if you must put $10,000 down on a home to purchase it, you may be able to withdraw $10,000 from your 401K.
Hardship Withdrawals. You must pay a 10 percent penalty on the withdrawn amount if under age 59 , which means if you’re withdrawing $10,000, you’ll pay $1,000 of that in penalties. Once you receive your hardship withdrawal to buy your house, you can’t put any more money into your 401 (k) for at least six months.