Can I take a rollover IRA or 401k loan distrib for new home purchase (first time buyer) in December but home closing is January 2020. Will I pay penalty? Better to wait?

[macuser_22 · Accepted solution]

1)   You can take up to $10,000 distribution from a Traditional IRA for a first time home purchase without the 10% early distribution penalty (the regular tax on the distribution still applies) if the money is used for the home purchase within 120 days of the distribution.   Spanning tax years makes no difference except the distribution is taxable in the tax year that it is taken, not used so if taken in December it will be taxable on your 2019 tax return, it taken in January it will be taxable in a year on your 2020 tax return.  For first time home buyers treatment the distribution  must be prior to closing.

2) 401(k) distributions have no first time home buyers provisions so would be subject to both tax and 10% penalty if under age of 59 1/2.

3) 401(k) loans have no tax consequence at all since they must be paid back.   The plan terms dictate if you can get a loan for that purpose.  Ask the 401(k) plan administrator.

[samanthanicoleba]

Thank you so very much for your answer! I don't close until later in January so I will wait until January if I do decide to take a distribution. Then at least that way I can use 2020 home interest paid (anticipated to be tens of thousands) to wash the penalty for the small distribution (less than 5k) if I take it. 

Plan administrator has shown me 401k loan plan. Now I am just at the point of having to consult with lender to see how it would affect the financing package I would qualify for. 

In short, your information helped me out a lot. Thanks again!

[macuser_22]

For more information see IRS Pub 590B for IRA "First home" requirements.

https://www.irs.gov/publications/p590b#en_US_2018_publink1000230922