[Hammer]

I’ve passed REG so I should know this, but I’m an auditor so cut me a break please.

My fiancé and I will be buying our first house in the coming months. I have an old 401k that I haven’t done anything with because I knew at some point I might want to pull it out to use on a downpayment.

Does the exclusion still exist? What I read from the tax code sort of felt like it doesn’t exist and I would have to pay the 10% penalty. If also read it’s up to $10k. Is that before or after tax? I have more than 10k in the account, so, assuming the exclusion exists would I just pull out the portion not subject to the 10% and roll the remainder into my current retirement fund?

Also, what if I pull the cash out in 2015 but don’t close on a house until 2016? How would that be reflected in my tax return?

Thanks for your help!!!!

FAR - 70, 81
AUD - 83
BEC - 77
REG - 70, 78

Licensed in Ohio.

Now what the hell do I do?

[Missy]

If you take it as a loan and have an active repayment schedule it's not taxable. If you aren't making loan payments you'll have to pay taxes on it.

Licensed Massachusetts Non Reporting CPA since 2012
Finance/Admin/HR Manager

[Hammer]

Not asking about the taxes. Asking about the 10% penalty

FAR - 70, 81
AUD - 83
BEC - 77
REG - 70, 78

Licensed in Ohio.

Now what the hell do I do?

[Missy]

The penalty is by the IRS and part of your taxes. Unless you have some weird 401k that charges you a penalty on top of the IRS one.

Licensed Massachusetts Non Reporting CPA since 2012
Finance/Admin/HR Manager

[marqzho]

REG 90
FAR 95
AUD 98
BEC 84

[Missy]

Basically if you take it as a withdrawal the disbursement will be less the taxes and penalty even if for the first time purchase of a home. If it's a loan from your 401k, it's exempt. However not all plans allow for loans.

Licensed Massachusetts Non Reporting CPA since 2012
Finance/Admin/HR Manager

[Anonymous]

401k is a qualified plan- no way to avoid the 10% penalty MCHammer- even for first time homebuyer. the $10K first time homebuyer exclusions does apply to IRA's though. (i think there's a 5 year wait period im not sure?) so prudent tax planning would be to roll over the 401k into an IRA, and take out the $10K towards the house from the IRA. good luck!

[Anonymous]

401k is a qualified plan- no way to avoid the 10% penalty MCHammer- even for first time homebuyer. the $10K first time homebuyer exclusions does apply to IRA's though. (i think there's a 5 year wait period im not sure?) so prudent tax planning would be to roll over the 401k into an IRA, and take out the $10K towards the house from the IRA. good luck!

[Author]

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