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    master baker's Avatar
    master baker Posts: 1, Reputation: 1
    New Member
    		  
    #1

    Jun 7, 2008, 04:57 AM
    401K penalties?
    Hello, I have a 401K worth roughly 30K, but I am interested in cashing it in to assist in the down payment of purchasing a house. What kind of penalties/taxes might I encounter and is this a really dumb idea? The other part of the money would come from selling stock, which I know there will be a capital gain tax on.

    Thank you
    MukatA's Avatar
    MukatA Posts: 7,110, Reputation: 176
    Tax Expert
    		  
    #2

    Jun 7, 2008, 06:23 AM
    If you withdraw money from 401K, you will pay 10% early withdrawal penalty and the total amount will be tax as your ordinary income.
    Another options is to borrow money against your 401k. Check with your 401K administrator.
    Still another option is to roll over the amount to Trad IRA. Withdrawal from Trad IRA for first time purchase of house is exempt from early withdrawal penalty. Read about IRA Your U.S. Tax Return: Traditional IRA and Roth IRA
    AtlantaTaxExpert's Avatar
    AtlantaTaxExpert Posts: 21,836, Reputation: 846
    Senior Tax Expert
    		  
    #3

    Jun 12, 2008, 08:20 AM
    MukatA's advice is sound, with a minor omission:

    There is a $10,000 limit on the amount that can be withdrawn from the traditional IRA for the first-time purchase of a home.
    ScottGem's Avatar
    ScottGem Posts: 64,966, Reputation: 6056
    Computer Expert and Renaissance Man
    		  
    #4

    Jun 12, 2008, 09:06 AM
    The reason this is a dumb idea is the amount of money you will be losing more than offsets the value derived from it.
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