topic Are there any exceptions to the 10% penalty fee for early withdrawal of 401K plans if the money is for downpayment on house. I am 55 in Retirement tax questions

Are there any exceptions to the 10% penalty fee for early withdrawal of 401K plans if the money is for downpayment on house. I am 55

huron86 — Sat, 27 Jul 2019 16:25:48 GMT

Re: Are there any exceptions to the 10% penalty fee for early withdrawal of 401K plans if the money is for downpayment on house. I am 55

xmasbaby0 — Sat, 27 Jul 2019 17:00:09 GMT

NO. If you are under 59 1/2 using money from your 401k to make a down payment on a house is not an exception to the 10% early withdrawal penalty. That rule is only for a traditional IRA, not a 401k. If you take money out of your 401k to buy a house before you are 59 1/2 you are subject to the 10% early withdrawal penalty and the ordinary income tax on the distribution--a pretty expensive way to make your down payment.

Re: Are there any exceptions to the 10% penalty fee for early withdrawal of 401K plans if the money is for downpayment on house. I am 55

DoninGA — Sat, 27 Jul 2019 17:34:07 GMT

No, there is not an exception to the 10% early withdrawal penalty if the withdrawal is from a 401(k) account and is used for a home purchase, first home or not. The exception is only if the withdrawal is from an IRA, for a first time home purchase and then only $10,000 is eligible for the penalty exception.

See this IRS Tax Topic for Additional Tax on Early Distributions from Retirement Plans Other than IRAs - https://www.irs.gov/taxtopics/tc558

See this IRS Tax Topic for Additional Tax on Early Distributions from Traditional and Roth IRAs - https://www.irs.gov/taxtopics/tc557

Re: Are there any exceptions to the 10% penalty fee for early withdrawal of 401K plans if the money is for downpayment on house. I am 55

Anonymous — Sat, 27 Jul 2019 17:12:07 GMT

Using Your 401k for a Down Payment
There’s no specific penalty exemption for home purchases when you pull money out of a 401k, so any money you take out will be classified as a “hardship exemption.” You’ll be assessed a penalty of 10% on the amount withdrawn and you’ll have to pay income tax on it as well.

If possible, roll over the amount you want to withdraw to an IRA, so you can avoid paying the penalty. However, you can’t roll over a 401k that’s with an employer for whom you are still working. If you have an old 401k from a former employer, roll that. Since a rollover can take time to process, fill out the necessary paperwork as soon as possible.

Borrowing from Your 401k
Another option with a 401k is to take out a loan. Your loan can be up to $50,000 or half the value of the account, whichever is less. As long as you can handle the payments (yes, you have to pay back this loan), this is usually a less expensive option than a straight withdrawal. Though you will pay interest, you won’t pay taxes or penalties on the loan amount. you have to make periodic payments on loan and repay entire principal in 5 years or else get taxed on any amount not repaid

Re: Are there any exceptions to the 10% penalty fee for early withdrawal of 401K plans if the money is for downpayment on house. I am 55

SweetieJean — Tue, 30 Jul 2019 17:09:19 GMT

Are you still working? The key age is 55 (not 59.5) if you left the job.

https://www.kiplinger.com/article/retirement/T001-C000-S004-retiree-tax-tip-the-age-55-exception-for-401-k-s.html

Re: Are there any exceptions to the 10% penalty fee for early withdrawal of 401K plans if the money is for downpayment on house. I am 55

dmertz — Tue, 30 Jul 2019 18:48:14 GMT

In particular, the age-55 exception applies to distributions made to you after separation from service if the separation occurred during or after the calendar year in which you reached age 55. If you have not separated from service, it's quite possible that no distribution is permitted unless it's a hardship distribution approved by the plan.