I still recommend you speak with the company that hold your 401k to find out the details. They will explain the terms and conditions when it is used towards a home purchase. Discuss this with your accountant so you understand the tax implications.
Senior Loan Originator
Prestige Mortgage Corporation
Speak with you accountant. Many financial planners will frown on borrowing from your 401K without a plan. To often people will withdraw the money for the down payment and neglect paying back the loan and than suffer a large tax penalty on retirement.
If you know what you game plan is and have spoken to you accountant it can be a good tool. Remember, you must place the money back in your 401K for your retirement.
Also go the NPR website. They have run many stories on this.
Whether you should go this route, or find a loan program that does not need you to take these funds, is not a simple decision, but it is an option. A good loan professional and Realtor, should be able to help you make the right decision.
Speaking in general terms, one can expect to pay 28% in federal income taxes, 5% in state taxes and 10% penalty which equate to 43% in total taxes (this may be more or less based on your situation). I have to put in a disclaimer that I am no longer a practicing accountant and that you should verify this with your CPA. A great CPA and real estate lawyer I recommend is Don Kiolbassa at 312 782 9035 or DHK@GBATaxLaw.com
If you are looking to purchase a primary residence with your 401K funds I will be happy to help you and can likely get one of my CPA contacts to give you free counsel.
Let me know.
Baird & Warner
773 677 5340
You may want to look into a roll over into a self directed IRA. You can purchase real estate with those for the purposes of investment without penalty - usually. But every situation is different.
If you are purchasing for your own use, often you can take a loan against your 401k without penalty for the down payment. You need to check with your HR person or 401k administrator to find out what you can do and compare with what you want to do.
IRS.gov also provides a number of information about 401k and penalties, etc.
You should always speak with your accountant before making any financial decision. Many of my clients have purchased homes using their 401k plan. If you do not have an accountant and need guidance towards making this purchase, feel free to contact me today. We have gathered many top professionals to help our clients navigate the purchase process. Good luck!