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Level 2

Question

Capital Gain

4 replies
28 views

If I cash in my 401k and use that money as a downpayment on a house, do I consider the entire amount as income, or would it cancel out because it went to a capital purchase (house)?

Level 15

It is income. It doesn't matter what you do with it except if you roll it over to another 401K or IRA account. It will add to your income and may push you inter a higher tax bracket so be careful. And there is a 10% Early Withdrawal Penalty if you are under 59 1/2. But you can avoid the 10% penalty if you use money from a IRA instead of a 401K to buy a new house.

jvotelAuthor

Level 2

thanks. I am 63. Isn't there a capital gains exemption of $500k if you are married and filing jointly?

Level 15

Yes but on a house SALE. Not for buying a house.