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.

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.