Borrowing from 401k for first time home buyer?

Someone told me if I borrow against my 401k to put money on a house that the withdrawl won't be taxed as heavily as it would if I just borrowd it to spend it is that true?

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  • 1 decade ago
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    If your employer allows it, you can borrow against (a loan from) your 401K funds. There will be no taxes or penalties as it's a loan, not a distribution.

    You will still need to qualify for the home loan & now an additional loan to repay your 401K.

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  • 1 decade ago

    you've got two different things going on here. First, "borrowing" is a loan and a loan from your 401k is not taxable at all so long as you repay it. However, if you take a withdrawal OR fail to repay the loan then it becomes a withdrawal and it's taxable AND a 10% penalty for you (assuming you're under age 59 1/2) regardless of whether you're using it to use buy a home or not. Buying a home is a legitimate reason to allow the withdrawal to occur while still employed (you can't take a withdrawal to pay down bills or just spend) but it has no bearing on the taxability of the money.

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  • 4 years ago

    2 problems with that: 1. You are borrowing from yourself, to pay for borrowed money. 2. Major money penalties. You lose 10% for early withdrawal, and then pay a whopping 30% as income. A total of 40% of your own money goes to the government instead of to your home. Save up, and pay a large down payment. Also there is first time home buyer Obama money still out there. See a Realtor for details.

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  • 1 decade ago

    You'll be taxed the same and penalized an extra 10 percent for withdrawing the whole amount early before your retirement age. It's something like 40 percent which is almost half. If you work for a big company with a benefits dept ask them, they should know the figures exactly. If you're only borrowing a portion and paying it back you don't have to pay any taxes I believe but I'm not sure.

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  • 1 decade ago

    Can I withdraw funds penalty free from my 401(k) plan to purchase my first home?

    If you are under the age of 59 1/2, you cannot withdraw funds from your 401(k) plan to purchase your first home without being subject to a 10 percent additional tax on early distributions from qualified retirement plans. However, depending on the rules for your 401(k) plan, you may be able to borrow money from your 401(k) plan to purchase your first home. Your plan administrator should have written information about your particular plan that explains when you can borrow funds from your 401(k) plan as well as other plan rules. Publication 560 and Publication 575 and Tax Topic 424 and Tax Topic 558 are available for further guidance

    http://www.irs.gov/faqs/faq-kw7.html

    good luck

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  • Anonymous
    1 decade ago

    Not sure what the difference in taxes is exactly, but I ended up paying almost half in taxes for taking some out early to pay off credit cards. Wasn't worth it in my case.

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  • 1 decade ago

    I know me hubby could have used his ONLY as NEW home Buyer,

    but it might depend on who the 401k is though, ask them

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  • 1 decade ago

    yes. I did this on my first home. There's no penalties.

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