There is no reason for withdrawing from a 401K that would make it tax exempt. There are some things that the money from the withdrawal can be used for that would exclude you from having to pay the 10% early withdrawal penalty if you were under age 59 1/2. However, a home purchase is not one of those things for a 401K withdrawal. You must pay taxes on the withdrawal and will owe the 10% early withdrawal penalty if your were under 59 1/2.