@bavery17 wrote:
My husband has an old 401k account that he no longer works for the company that set it up. We are under the age of 50 and 1st time home buyers. He has roughly over 19k in the account and we are wondering if it is in our best interest to roll it over into a roth IRA and use the funds to help with a down payment. How much can he take out without getting penalized and can we both qualify to take out since we are married? Or with the covid situation my understanding there is no penalties with taking out of the 401k accounts at this time? We are in need of some advice. Thank you if you can help!
First, there is no first time home buyer penalty exception for a 401(k).
Second, rolling (converting) a before-tax traditional 401(k) to an after-tax Roth IRA becomes 100% taxable at the time of conversion. You can roll it tax free into another before-tax Traditional IRA and then take up to $10,000 from that IRA for a first time homeowner 10% early distribution penalty exception, but it is still subject to the normal tax.
The CARES act coronavirus-related distribution that eliminate the 10% penalty (but not the normal tax) probably would not qualify if the reason is for a home purchase - but you must determine that yourself.
§2202
https://www.congress.gov/bill/116th-congress/house-bill/748/text#toc-H7E8FA907EAE04884809A56325BD425...
(4) DEFINITIONS.—For purposes of this subsection—
(A) CORONAVIRUS-RELATED DISTRIBUTION.—Except as provided in paragraph (2), the term “coronavirus-related distribution” means any distribution from an eligible retirement plan made—
(i) on or after January 1, 2020, and before December 31, 2020,
(ii) to an individual—
(I) who is diagnosed with the virus SARS–CoV–2 or with coronavirus disease 2019 (COVID–19) by a test approved by the Centers for Disease Control and Prevention,
(II) whose spouse or dependent (as defined in section 152 of the Internal Revenue Code of 1986) is diagnosed with such virus or disease by such a test, or
(III) who experiences adverse financial consequences as a result of being quarantined, being furloughed or laid off or having work hours reduced due to such virus or disease, being unable to work due to lack of child care due to such virus or disease, closing or reducing hours of a business owned or operated by the individual due to such virus or disease, or other factors as determined by the Secretary of the Treasury (or the Secretary's delegate).
**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
