Page 1 of 1

IRA Withdrawal for House Down Payment

Posted: Tue Aug 07, 2018 2:00 pm
by N10sive
A friend was told from another person to withdraw from his 401k to use as a down payment to purchase a condo. I told him this pry wasn't the greatest idea due to all the taxes/fees involved but have brought up a few questions when I did some research.

1. Can you withdraw from a Traditional IRA up to 10k tax free for a house downpayment? Or just penalty free?
2. Do some 401k plans offer a first time home buyer loan? Everything I read as a distribution still gets the 10% penalty plus fed tax.
3. Would a state income tax also be applied to the 401k distrubition?

TIA for the answers

Re: IRA Withdrawal for House Down Payment

Posted: Tue Aug 07, 2018 2:34 pm
by Big Dog
the friend can 'borrow' from his/her 401k for a home purchase. However, the interest on the payback to the 401k is not tax-deductible.

Alternatively, if the Plan allows, the friend can withdraw up to $10k penalty free, but tax will still be due.

Re: IRA Withdrawal for House Down Payment

Posted: Tue Aug 07, 2018 2:58 pm
by delamer
1. Penalty free, but not tax free.

2. A loan and a distribution are different things.

Many 401(k) plans allow for a loan for a downpayment on a home. Frequently the pay back period is longer than the 5 years for loans for other purposes.

3. Yes. But again, distribution and loan are different.

Re: IRA Withdrawal for House Down Payment

Posted: Tue Aug 07, 2018 3:07 pm
by N10sive
delamer wrote:
Tue Aug 07, 2018 2:58 pm
1. Penalty free, but not tax free.

2. A loan and a distribution are different things.

Many 401(k) plans allow for a loan for a downpayment on a home. Frequently the pay back period is longer than the 5 years for loans for other purposes.

3. Yes. But again, distribution and loan are different.
Thanks for the info. I realize I mixed my words on loan and distribution.

Are there different rules for the payback of a loan if one changes jobs?

Re: IRA Withdrawal for House Down Payment

Posted: Tue Aug 07, 2018 3:08 pm
by Toons
IRA Means Individual Retirement Account.
I would treat it as such,
Find other monies for down payment,

:happy

Re: IRA Withdrawal for House Down Payment

Posted: Tue Aug 07, 2018 3:11 pm
by delamer
N10sive wrote:
Tue Aug 07, 2018 3:07 pm
delamer wrote:
Tue Aug 07, 2018 2:58 pm
1. Penalty free, but not tax free.

2. A loan and a distribution are different things.

Many 401(k) plans allow for a loan for a downpayment on a home. Frequently the pay back period is longer than the 5 years for loans for other purposes.

3. Yes. But again, distribution and loan are different.
Thanks for the info. I realize I mixed my words on loan and distribution.

Are there different rules for the payback of a loan if one changes jobs?

The rules changed with the recent tax law; the loan repayment period was extended.

Try an Internet search to get details; I don’t know them.

Re: IRA Withdrawal for House Down Payment

Posted: Tue Aug 07, 2018 8:13 pm
by Alan S.
To clarify, there is no first home 10,000 penalty waiver for 401k distributions. The penalty exception only applies to IRA distributions.

https://www.irs.gov/retirement-plans/pl ... tributions

Re: IRA Withdrawal for House Down Payment

Posted: Fri Aug 10, 2018 2:51 pm
by N10sive
Alan S. wrote:
Tue Aug 07, 2018 8:13 pm
To clarify, there is no first home 10,000 penalty waiver for 401k distributions. The penalty exception only applies to IRA distributions.

https://www.irs.gov/retirement-plans/pl ... tributions
Thank you! This is exactly what I wanted to find out.