[GKELLY64]

I want to take 46,000.00 from my 401K. I want to withdrawl this amount to purchase a home. I know this is not the smart thing to do, however I need the money, in order to purchase the home. I believe my plan will withhold 10% for federal taxes, and I also believe I will need to pay a 10% penalty. How much of the 46K will I likely received, after all the deductions?

[ScottGem]

First, you have to see if your plan will allow the withdrawal. They may not. Second, if ythey do, they will wthhold 20% towards your federal tax liability. In addition, when you file your taxes for the year of distribution, you will have to pay a 10% penalty.

So you will get less than $37K from the plan. Of that you will need $4600 to pay the penality. In addition, you will have to calculate how much you will have to pay in federal and local taxes income taxes when $46K is added to your taxable income. Potentially you will clear leass than $30K of this distribution. This means taking this withdrawal may cost you as much as 50%. Are you willing to throw away that much money? Isn't there some alternative? Have you looked into a 401K loan?

[AtlantaTaxExpert]

Scott raises several excellent points.

Another possibility is to roll over about $15,000 into a traditional IRA, then withdraw $10,000 from the IRA. If the home purchase qualifies as a first-time purchase, you can withdraw the money from an IRA and NOT pay the 10% Early Withdrawal Penalty.