taking loan from 401K rollover to IRA

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bholm83
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Joined: Sat Jun 01, 2019 12:48 pm

taking loan from 401K rollover to IRA

Post by bholm83 » Fri May 22, 2020 5:43 pm

When I left one of my previous employer, I opted to have my 401K balance rolled over into an IRA into my Schwab account. Are the fees to take funds out of the account the same as if I withdrawed money from a 401K? I only ask because I plan to purchase a home within the year, and while I realize it generally isn't a good idea to take a loan from a retirement account, I now have a guaranteed pension with my current employer so not too concerned about saving the money in that 401K/IRA. There is about $10,000 in it.

Appreciate the help!

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Nate79
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Re: taking loan from 401K rollover to IRA

Post by Nate79 » Fri May 22, 2020 5:54 pm

How old are you?

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whodidntante
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Re: taking loan from 401K rollover to IRA

Post by whodidntante » Fri May 22, 2020 10:55 pm

There is no means of taking a loan from an IRA, other than doing a once per year 60 day rollover. Are you asking about a distribution?

Topic Author
bholm83
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Re: taking loan from 401K rollover to IRA

Post by bholm83 » Sat May 23, 2020 9:11 am

Sorry I misspoke and looked into this further. I am a first time home buyer, and from what I understand I can withdraw (Penalty free) up to $10,000 from an IRA to pay for the home. I’d only pay income taxes on that amount, correct? Does it matter that the IRA I would be taking a loan from was rolled over from A 401K?

retiredjg
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Re: taking loan from 401K rollover to IRA

Post by retiredjg » Sat May 23, 2020 9:28 am

Once the money is in IRA, IRA rules apply. It does not matter that the money came from a 401k.

Yes, you would pay taxes on what you take out. The taxes need to come from your savings, not the IRA, unless you are older than 59.5.

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bholm83
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Re: taking loan from 401K rollover to IRA

Post by bholm83 » Sat May 23, 2020 10:00 am

So I could conceivably withdraw up to 10K from an IRA, and All my contributions from my Roth? I don’t plan on going this route but just curious if there is a limit to how much I can withdraw from a traditional and Roth IRA

retiredjg
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Re: taking loan from 401K rollover to IRA

Post by retiredjg » Sat May 23, 2020 10:06 am

You can theoretically take all the money in your IRA. The $10k exception is an exception to the penalty, not a limit on what you can take out.

The Roth IRA is separate. And yes, you can take your direct contributions with no penalty. Back door contributions and rollover contributions are more complicated.

Alan S.
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Re: taking loan from 401K rollover to IRA

Post by Alan S. » Sat May 23, 2020 2:48 pm

bholm83 wrote:
Sat May 23, 2020 10:00 am
So I could conceivably withdraw up to 10K from an IRA, and All my contributions from my Roth? I don’t plan on going this route but just curious if there is a limit to how much I can withdraw from a traditional and Roth IRA
If you end up taking a Roth non taxable distribution from your regular Roth contribution basis, when you report the distribution on Form 8606, do NOT enter anything on line 20, as that would just add complications with no benefit. For example, if you only needed 10k and had a balance of 5k in regular Roth contributions, you could distribute that 5k and also 5k from your TIRA. The TIRA distribution would be taxable, but no penalty, and you would still have 5k left of your lifetime first home exception for future use.

If you are married, your spouse also has a 10k lifetime first home exception from their IRAs. Be sure you qualify for the first home exception before taking a distribution.

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