1

My wife and I are expecting to buy a home either this year or next, will start looking in the next month. It will a first home for the both of us.

I currently have both 401(k) and 401(a) from a previous employer (have not yet rolled over). I am aware first time home buyers can withdraw $10,000 without penalty from a 401(k)/IRA for a down payment, but I have a few questions regarding specifics

  • Is the $10,000 after taxes? Meaning, should I withdraw $13,500 with anticipation of having $10,000 un-penalized after taxes, or should I withdraw $10,000 and expect to have $6,500 after taxes?
  • Is there any difference in withdrawing from a 401(k) vs 401(a)?
  • Is it necessary for me to first transfer the money to an IRA, so it is readily available when I actually go to get a mortgage?
  • I anticipate my new employer to offer a 401(k) beginning in 2018 and will be considering rolling over my old 401(k)/(a) to theirs. Does that have any impact on how I should manage the withdraw for a house down payment now?
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No, it's a $10k withdrawal. You net what you net after federal and state taxes.

IRA? It has a similar penalty free $10k withdrawal option for home purchase, so this might give faster access once you decide.

Given the choice between a withdrawal and a loan, I'd take the loan. As soon as you are with the new employer, ask HR about the rules for participating in their 401(k) and rules for their loans. If, for whatever reason it won't work for you, take $10K and transfer to the IRA, and the rest into the 401(k), if the 401(k) has good investments and low cost..

My answer focuses on the desire to withdraw the money. A loan is better than a withdrawal. Better than both is a delay and saving all you can for the downpayment.

After the closing, I'd be mindful of spending, save all you can to retirement accounts and pay this loan off over the time good for you.

  • Thanks for the feedback. Do you distinguish between taking a withdraw or loan from the 401(k) vs 401(a)? – DrTarr Aug 21 '17 at 21:47
  • I honestly don't know the difference between the 2. As long as the loan rules are the same, no distinction. – JoeTaxpayer Aug 21 '17 at 21:49

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