[cheachea123]

I am 26 years old, have a great credit score, prequalifiy for 50K more than I even need to purchase, but only have half my downpayment. I have found a great deal on a home and want to purchase asap. I have 2 401K's, one I have not put money into for 5 years, and is just enough to cover the other half of the downpayment of my first home. How do I cash this out without the penalties? Who do I contact to make sure this goes directly to the purchase of my home?

Before people get on me for cashing out, I have another 401K with more money from my newer job, and many stock options I invest in. I can afford to cash this little one out. Im 26, Im sure Ill be OK. I just don't have the time to save enough money up, without losing this dream house I want.

[ScottGem]

How do I cash this out without the penalties? Who do I contact to make sure this goes directly to the purchase of my home?

You can't. Even if the plan permits withdrawals, you will still incur the 10% penalty and you will have to pay taxes on the income.

Before people get on me for cashing out, I have another 401K with more money from my newer job, and many stock options I invest in. I can afford to cash this little one out. Im 26, Im sure Ill be ok. I just dont have the time to save enough money up, without losing this dream house I want.

While I agree you may be able to afford the penalties, do you really want to throw away 30-50% of what you have saved? Because that's what is going to happen if you cash out the old 401K.

Does your current plan include a loan feature? If so, I would roll the old plan into the current one, then take a loan against it for the downpayment. The full loan repayment goes back into your 401K so this would satisfy your need to get the money for your downpayment and still give you time to save the money.

[cheachea123]

Thanks. I have another 401K and stocks that make up 90% of my retirement, this little 401K from years ago is small and not much of what Ive saved.

What is the difference between rolling in the money and taking the penalty, than cashing out the whole thing? (only the first little 401K, not my current one)

[ScottGem]

If you roll the little one into your current plan, there will be no penalty. As long as the funds are transferred to a qualified plan you will incur no penalty or taxation. However, if you cash out the small plan, 20% will be taken off the top as withholding against federal taxation. In addition, when file your 2009 taxes, you will need to pay the 10% penalty. So this is going to cut a significant portion out of what you take out.

Again, if you take a loan against the 401K, you will be paying yourself back with interest. So you will be doing the saving you don't have time to do now.