My husband has almost 14,000 in a 401K that is currently just sitting. He isn't retirement age (and nowhere near it). We are in the process of building a home (the builder is going to purchase our current home if it doesn't sale at the end of the transaction) and we would like to use the money as down payment/start up money. We have another account with Edward Jones. I also have a 403B (I'm a teacher) and a small CD so we will still have money growing for retirement. Can we cash it out for the home without the penalties/taxes being as harsh? Should we roll it over first then use the money? We need the money but want to get it with the least amount of money lost. Thanks in advance for your help.

If you cash out the 401(k) you will have to pay income taxes (federal as well as state/local) and also the 10% penalty for early withdrawal, even though you are using the money to build a home. There's not much point in trying to roll his 401(k) to an IRA, as the exception to the 10% penalty for an early withdrawal from an IRA is for a first time home purchase only, which does not apply in your case. You say you have other investments at Edward Jones - why not use that instead?

Ebaines,

Will we have to pay state/local income taxes in TN? TN doesn't have an income tax.

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Originally Posted by ShavonLouis

Will we have to pay state/local income taxes in TN? TN doesn't have an income tax.

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Obviously not.

Taking out the 401K is not the smartest move. Besides the fact you will lose a significant amount to penalties and taxes, you will also be losing the income on the investment. You will most likely be making more then the cost of the money you borrow.