in [Event] Ask the Experts: Tax Law Changes - One Big Beautiful Bill
3696272
I am near retirement and purchasing my retirement home. My existing home has not yet sold. Is it a reasonable idea to take an IRA/401k withdrawal to pay for part of the new home?
You'll need to sign in or create an account to connect with an expert.
You do not define what "near retirement" means in terms of your age. If you take money out of a 401k before you are 59 1/2, you pay a 10% early withdrawal penalty + ordinary income tax on the distribution. Using the money to pay for a house is not an exception to the 10% penalty for a 401k.
Any money you remove from your 401k or IRA is subject to ordinary income tax. You will get a 1099R for the distribution which you will need to enter on your income tax return. Using the money for a retirement home is irrelevant.
I am NOT one of the experts, but was in the same situation. I had a lot of equity in my current home, so I used a home equity line of credit to purchase a lower priced new home. When the current home sold, it automatically paid off the loan. There was only about 50 days of interest, I didn't have to touch my 401K, and the process was easier than a normal loan.
When you withdraw funds from a Traditional IRA/401K, you will pay taxes on it. If you are 59 1/2 years or older you would not have to pay penalty on the withdrawal. As you currently own the home you are trying to sell, you will not qualify for a new home exclusion from penalty on the first $10,000.00. This exclusion from penalty is only available once. Though taxes will be owed on the full amount withdrawn from Traditional IRA/401K.
Also remember, you may owe taxes on the sale of your existing home. The exclusion amount for capital gains tax is on first $250,000 if single filer or married filing separately or $500,000 if married filing jointly.
Here is a link to help you understand if the 10% additional tax/penalty for early withdrawal and tax on withdrawal from a retirement account will apply to you.
IRS: Exception to tax on early Withdrawal
Still have questions?
Questions are answered within a few hours on average.
Post a Question*Must create login to post
Ask questions and learn more about your taxes and finances.
lopezmariag
Level 1
in [Event] Ask the Experts: Tax Law Changes - One Big Beautiful Bill
David251
Level 1
in [Event] Ask the Experts: Tax Law Changes - One Big Beautiful Bill
sidneyd37
New Member
jaredadwyer
New Member
user17524181159
Level 1