Can I withdraw funds from my 403(b) retirement plan without penalty, for the purposes of purchasing a first-time home?

If not, are there other retirement plans from which I could withdraw without penalty, to which I could transfer funds from my 403(b)?


Hi Alex. I've been alerted you're seeking a better answer to this question. ;-) Please accept my apologies for not coming back to this question sooner – it got buried. :-/

No, in general you cannot make an early withdrawal penalty-free from a 403(b) account to use towards the purchase of a home. Withdrawals before age 59 1/2 are generally subject to the 10% early withdrawal penalty, on top of ordinary income tax.

Some 403(b) plans may allow for a loan, but the availability and conditions vary by plan. If you'd consider a loan, you should check with your plan administrator or your plan's Summary Plan Description – often available at one's company intranet or HR web site. (I do contract work for an HR consulting firm that assists others in building such sites, and SPDs are usually something made available for download in a "Retirement" or "Wealth" section of such web sites.)

Note that a loan from a 403(b) would need to be paid back into the plan over some period of time, e.g. 5 years, though I have come across examples of some plans that do permit a longer pay back period of 10, 15, even 30 years if the loan is used for a home purchase. But consider this article: The 403(b) Loan: The New Debtors Prison?

Finally, to your last point: Yes, if you have an IRA, there are rules permitting withdrawal of up to $10,000 penalty-free for use towards the purchase of a first home. See page 53 in IRS Publication 590. There's also a good article at Fool.com: All About IRAs - For First Time Home Buyers.

Such a withdrawal from a traditional IRA remains subject to ordinary income tax. If have a Roth IRA, you can withdraw free of income tax but you need to pay attention to the Roth IRA 5 Year Rule.

Additional Resources:

  • Thank you, this is very helpful! I really appreciate the information. – Alex Reynolds Jan 22 '10 at 11:40
  • You're welcome! I'm glad it was helpful. – Chris W. Rea Jan 22 '10 at 17:11

I don't know about the technicalities of retirement accounts, but I would advise you to please please please do not use retirement money to buy a home.

The reason for not ever wanting to spend your retirement is.. when can you make it up? When you retire, you are by definition no longer earning money, so all your expenses can only come from the money you have saved. If you are willing to borrow from your retirement, it is not hard to imagine you are willing are willing to get a new car, or a new barbecue, or a new fishing boat before you repay yourself.

So the question to ask yourself is, "can I deal with renting for a few years knowing that I can retire comfortably, or am I willing to risk retirement to have a house now."

Part of the will power it takes to pay yourself first is not taking from your own savings. You cannot count on anybody but yourself to take care of you when you are old.

It is just opinion, but risking a comfortable retirement for a home now is not a risk anybody should take.

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    So... why not? I think a few more words are in order before I give my +1 ;-) – Chris W. Rea Jan 11 '10 at 23:28
  • dangle that carrot... – MrChrister Jan 12 '10 at 5:21
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    I'm fairly young and have a fair amount accumulated. I'm not interested in a new car or BBQ, but a house for which I would like to avoid mortgage insurance, get a better mortgage rate, and have a lower monthly payment. This is an entirely different purchase for me, which is why I'm asking if the funds can be withdrawn without penalty. – Alex Reynolds Jan 14 '10 at 0:06

Yes. According to the IRS website, see #2: Whether a need is immediate and heavy depends on the facts and circumstances. Certain expenses are deemed to be immediate and heavy, including: (1) certain medical expenses; (2) costs relating to the purchase of a principal residence; (3) tuition and related educational fees and expenses; (4) payments necessary to prevent eviction from, or foreclosure on, a principal residence; (5) burial or funeral expenses; and (6) certain expenses for the repair of damage to the employee's principal residence. Expenses for the purchase of a boat or television would generally not qualify for a hardship distribution. A financial need may be immediate and heavy even if it was reasonably foreseeable or voluntarily incurred by the employee. (Reg. §1.401(k)-1(d)(3)(iii))

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    please provide a link to the document. Also this discusses the ability to make a hardship withdraw, it doesn't discuss the taxes or penalties. – mhoran_psprep Aug 5 '13 at 16:55
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    The reg you quoted is for 401(k) accounts, not 403(b). – littleadv Aug 5 '13 at 17:55

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