From: Philadelphia, PA

Dear TaxMama,

I desperatley need to withdraw money from my 401(k) to use funds toward a house purchase.

What penalties will I have?

It is only about $3,000 worth of total funds.

Please help!

Karen

 

Dear Karen,

Are you really so desperate that you want to throw your money away?

If you are younger than 59 1/2 - you will pay $300 in penalties to IRS and something more to your state. (I don't know PA's rates.)

Plus, you're likely to pay income taxes on it, too.

If you can afford to buy a home, your tax bracket is probably 25% + PA tax - so your advance is apt to cost you about a total of 40% of the $3,000.

Seems a waste of money to me. You'll barely get $1500 out of the whole thing.

If that's all you have in there - leave it and use a credit card - it's much cheaper. Or ask your folks - or your friends.

Good luck.

Best Wishes,
Eva Rosenberg, MBA, EA