Originally Posted by jschn549
#1;I currently left a company in which I have 20k in a fully vested 401k. I also have 6k in a Roth IRA and 8k in a joint checking account. My wife and I are currently looking to purchase our first house within the next few months. We will need roughly 23K for a down payment/closing costs. What would be the best strategy to avoid the withdrawal penalties of the retirement account. I've heard first time home buyers can avoid withdrawal penalties, but have been reading conflicting articles. According to Merrill I would get hit with a initial 10% tax penalty when withdrawing the 401k as well as a 20% penalty when I file taxes next year.
#2;Would it be smart to withdrawal the whole 20k in the 401k to use towards the home purchase? Any help on this would be greatly appreciated.
#1;AS you are buying a home, you may be allowed to withdraw money for that sole purpose without the associated penalty; You may withdraw up to $10K from your traditional IRA and R-IRA for the first-time purchase of a home.in general, You are allowed to borrow half your vested balance or $50k, whichever is less, without incurring a penalty or taxes from 401k. Your employer will provide the paperwork for your loan. Taking a loan from your 401(k) instead of a straight withdrawal will protect you from paying taxes and penalties. There are some exceptions to the 10% additional early withdrawal tax penalty. If you qualify for one of the exceptions, you still have to report your withdrawal as income, but you don't have to pay the 10% additional early withdrawal tax penalty.for example,
the following two exceptions apply only to retirement plans that are Traditional or Roth IRAs:aslongas the distribution ,up to $10k per spouse, was made to purchase a home for yourself, your spouse, or one of either of your parents, grandparents, children, or grandchildren--if you are a qualifying first-time homebuyer (roughly, you who did not own a home for the last 2 years). with your Roth IRA, you can withdraw your principal contributions at any time without a tax penalty. This is not the case with a traditional IRA;
withdrawing their principal from a traditional IRA would be subject to federal, state and local taxes . So your $6k principal has already been taxed before going into the R-IRA. Therefore, it can be withdrawn at any time without paying any additional tax or10% early w/d penalty.
#2;I guess you may withdraw from your bank acct. and r-ira first then, you may withdraw
From 401k for the remaining balance for the downpayment. However, the costs may not be worth it. if you are younger than 59 ½, any money that you withdraw from your 401k to buy a house is subject to the appropriate income taxes. You will also pay a 10 per cent ‘early withdrawal penalty’.Keep in mind also that your employer does not have to offer the ability to make a hardship withdrawal. You should therefore check that such a withdrawal is available to you.so I guess You may be better considering other options such as borrowing money from friends of family or delaying your house purchase until you can save up more of a downpayment.