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1st time home buyer withdrawal from Roth IRA vs 401K

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!

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1 Reply

1st time home buyer withdrawal from Roth IRA vs 401K


@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...

 

 

 

**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.**
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