I've been making post-tax contributions to my employer's Roth 401K plan for a little over 3 years now, and I'm needing some cash for a downpayment for my first home. Will I be taxed on the full amount of the disbursement, or just the earning on the account?

Ex: I made $10K in post-tax contributions, which net me 20% and brought my account balance to $12K in my Roth 401K. I take out $10K - Would I only be taxed on the portion of the $10K that I take out that is profit?

  • Many employers have provisions that allow you to take out a loan from your 401k account. You would then only get taxed on any amount that you don't repay after leaving the employer.
    – Dunk
    Feb 23, 2012 at 19:45
  • wikinvest.com/wiki/Roth_401(k)_Plan indicates that a $10k withdrawal from a 401k that is composed of $10k contributions and $2k earnings is tax free. Any withdrawals beyond the contribution amount before age 59 1/2 is taxed and a 10% penalty is applied. Per JoeTaxpayer's answer, you may not be allowed to use a Roth 401k to make a down payment.
    – IceArdor
    Jul 3, 2014 at 7:53

2 Answers 2


Read Example: Roth IRA First Time Home Buyer Exception

The Roth 401(k) does not allow for the first time home withdrawal as a Roth IRA does. If your employer allows you to first roll it over to a Roth IRA, you're all set, but that's not likely.

The better choice in this case might be a loan, you may be able to borrow up to 50% of the account value.

  • spelling out the answer then, is it: the profit on the account is not relevant (Roth withdrawals are not taxable except for penalties) but a 10% penalty tax on the entire amount (basis plus profit) would apply, plus of course the loss of tax-free growth in the future? the only way to get the money out sans penalty would be to change jobs which would permit an IRA rollover. Another option might be a loan if the 401k plan permits it, but such loans are generally considered dangerous.
    – Havoc P
    Feb 23, 2012 at 1:36
  • 1
    Not really. The current administrator may simply not permit the withdrawal, rendering the discussion of penalties moot. Feb 23, 2012 at 1:56
  • This may be an opportunity to look around for jobs at other companies, especially if your employer isn't keeping your salary competitive with the market. You might be able to return to your original employer, maybe even with a higher salary than you would have been able to get through the ordinary salary annual review process.
    – IceArdor
    Jul 3, 2014 at 8:14

Here is my understanding after reading up a bit:

  • if you still work for the employer you can't withdraw at all unless you have a hardship (needing a down payment won't count). you simply can't get at the money. this is what JoeTaxpayer is saying.
  • you may be able to take out a loan if your plan allows and you want to risk it, lots of articles out there detailing the risks that are worth reading.
  • if you don't work for the employer anymore the logical thing is probably to roll to IRA to get the more friendly IRA rules (side note, one probably-irrelevant-here advantage of 401k rules is better bankruptcy/lawsuit protection)
  • but if you did not roll to IRA, a pre-retirement-age distribution (non qualifying distribution) from an account with 80% contributions and 20% earning would be taxed and penalized on 20% of whatever amount you take out. in your example I think you take out 10k and pay tax and penalties on 2k/12k=1/6 of the 10k. this is the only Roth specific thing really, the other rules and considerations apply to any 401k.

I don't promise I got it right, I'll community-wiki this in case anyone wants to fix mistakes.

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