Hi, I am permanently disabled, 52, and on disability retirement from the USPS. I have a little over $100000 in my 401k that I would like to use to purchase a home for cash. I know that I will not have to pay the 10% penalty due to my disability but I have three
Other questions. 1) Will I lose my disability income because of this withdrawl even if I use it to purchase a home? 2) Will I still have the 20% taken out by my employer? 3) Will this be considered income despite my purchasing a home with it? PS. I can not get a loan otherwise because of a short sale done on my last home because of my disability.

1) Depends on where you are getting your disability from and the rules governing it. However, I shouldn't think it would be affected.

2) Yes, the administrator should withhold 20% towards your tax liability, but you should get most of that back when you file your 2012 return.

3) Yes it will still be considered income.