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Anonymous
Anonymous asked in Business & FinancePersonal Finance · 9 months ago

What are the penalties if I use my Roth IRA and 401k to buy a house?

I got about 110k in those accounts 30k of it is not in retirement funds. I want to buy an acre of land and put a small cabin on it off the grid. I figure for what I want it’s going to take all I got.

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  • RICK
    Lv 7
    9 months ago

    The Roth no penalty

    The 401k a 10% penalty on top of taxes if under 59 1/2 years of age

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  • 9 months ago

    There are no penalties for using that money to buy a house, or for any other type of purchase. The penalties are for withdrawing the money before your retirement age. Read the papers you were given when you opted into the Roth IRA/401k or call your plan administrator and ask them.

    Source(s): Certified Paralegal, with 25+ years' experience.
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  • Judy
    Lv 7
    9 months ago

    401k, pay income tax that year, plus a penalty of 10% of what you withdraw if you're under 59-1/2,

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  • 9 months ago

    Individuals who are under the 401k withdrawal age of 59 and a half and make an early withdrawal will pay income tax, plus a 10 percent 401k withdrawal penalty. You can withdraw Roth contributions without penalty that were made 5 or more years before withdrawal.

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  • 9 months ago

    10% withholding and you'll have tax liability at your highest rate on the non-Roth funds.

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  • 9 months ago

    You might be able to take a distribution from the Roth up to the amount of your original contributions without tax or penalties. For your 401k you're going to get nailed if you take a distribution especially if you're not yet 59 1/2. You'll owe ordinary income tax on the amount plus a 10% penalty.

    30k "not in retirement funds" doesn't say anything about what it is so it's impossible to say.

    Some 401k plans allow for loans. If yours does, you can borrow from your 401k and pay it back with interest. Check with your plan administrator.

    Don't confuse "hardship withdrawals" for nontaxable distributions. Some 401k's allow for hardship withdrawals, but that just let you get the money out of the fund. You still owe full tax on the distribution.

    Unless you can borrow from your 401k, you'd be much better off getting a mortgage so you don't get smashed by taxation.

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  • 9 months ago

    Roth IRA -

    - Contributions can always be withdrawn without tax or penalty.

    - Taxes apply to the earnings if you withdraw those.

    - The 10% penalty can be avoided if this is your first home (or you haven't owed a home in two years)

    401k

    - You would pay taxes plus a 10% penalty on the withdrawal. The exception to the penalty only applies to IRAs and not 401ks.

    - If you still work the sponsoring employer, you probably won't be able to take the withdrawal at all.

    What is your Plan B?

    • NA
      Lv 7
      9 months agoReport

      Good summary, but only $10K of IRA money will avoid penalty if he qualifies for first time homebuyer exception. Given his plan to buy land and add a cabin, I doubt he'd qualify.

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