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» From: Denver, CO Dear TaxMama: I am trying to find information regarding withdrawing from a 401k account for a first time home purchase. Dirk Dear Dirk, You can withdraw up to $10,000 if you use the money directly for the purchase of a home. But, the only problem is, you can't withdraw it from the 401k. You must, FIRST move the $10,000 to an IRA. The first-time homeowner provision is only part of the IRA rules, not the 401k rules. That's why it's such a trap. It's so often misunderstood and people too often make that mistake. To be a first time homeowner, your name could not have been on title on any home for the last 24 months. If you qualify, then you get to draw the money without penalty. But you will still pay taxes. What will you pay taxes on? The earnings in the IRA. This publication may give you some more detail. Oh, did I remember to tell you that you could BORROW the money from the 401k for free? Yes. In fact, you may borrow 50% of your account or up to $50,000 without paying taxes. You will be making quarterly payments back to your own 401k. The only caveat is if you leave the job, you MUST pay the money back or pay taxes and penalties on the outstanding balance. Best wishes, Eva Rosenberg Your TaxMama [Note: This question was published in the e-newsletter with a missing paragraph. The error was caught by Melinda Handy of http://cpa-firm.com/.]
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