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    Renting & Real Estate


    When withdrawing $$$ from 401K for 1st home purchase, is 10% penalty exemption capped at $10K?

    I've got about $65K that I want to roll into an IRA and withdraw for a first time home purchase- unfortunately, it's the only way I can afford to buy in California. I want to avoid as much of the 10% pernalty for early withdrawl as I can. My plan administrator says the first-time home buyer exemption is only good on the first $10K of my withdrawl? True? Any other way to avoid penalty?
    a few seconds ago 4 Answers

    Best Answer

    Chosen by Asker
    Nope, no other way besides fraud. It's capped at 10k in IRA's and you there is NO exemption from it for the 401k for first time home buyers. You didn't say...were you planning on quitting your job to roll these funds in? Also, I don't mean to be flip but the damage you're going to do to your retirement is huge...greater than that house will appreciate; even in Callifornia. Better to leverage the purchase as great as possible and pay higher monthlies then take the distribution(even with PMI). Also better to stop making contributions altogether then taking the withdrawal if that's what it takes to get you in the house. I understand the high cost of living makes it tough...but 65k is likely 10% down. Is that truly necessary or is it just to make your life a little easier....do it if it's the former. Lower your contributions if it's the latter.
    a few seconds ago

    Other Answers

    • In answer to your question, each plan has a few differences as to what a 401-K can be used for, how much can be borrowed against it In most instances money used to purchase a home normally is not penalized. You may not touch the money it normally have to go from the plan to the escrow closing agent. To be sure how your plan is set up for this home purchase it is best to check with your plan manager. Some times your H/R director would know, but if they don't always check or call your plan manager. I hope this has been of some use to you, good luck. "FIGHT ON"

      by Skip - a day ago

    • The first time homebuyer clause is for $10,000 only, as you stated. However, I believe if you open a traditonal IRA and then roll the money from your 401K directly into the IRA, you can avoid any fees and penalties. The government also allows a 60-day transfer to move money between similar retirement vehicles without penalty (but it is a strict 60 days), which may be perfect in your case. I would suggest researching brokers (such as TD Ameritrade or Schwab) and picking the IRA you like best. Then go to a local office and get their opinions on how to transfer your money with the least resistance.

      by jerry - a day ago

    • If your 401(k) allows for a loan to purchase a home, that may be a better option. No taxes, no penalties and you basically pay yourself back principal and interest.

      by mrswho86 - a day ago

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