Home Buying in Chicago>Question Details

gordana.dc20…, Renter in Chicago, IL

If I use 401k to prchase condo will I be charged tax .

Asked by gordana.dc2011, Chicago, IL Wed Apr 2, 2014

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In general, if you take a distribution from a 401(k) or other qualified retirement plan before you turn age 59½, you are subject to a 10% penalty tax. The 10% penalty tax is in addition to your regular income taxes.

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.

Priscilla Land
Senior Loan Originator
Prestige Mortgage Corporation
Direct: 708-566-06661
1 vote Thank Flag Link Wed Apr 2, 2014
There are 401k sponsors who specialize in real estate 401k. google them for your options
0 votes Thank Flag Link Thu Apr 24, 2014
You should talk with the funds holder and ask them that question
0 votes Thank Flag Link Wed Apr 16, 2014
I have a special contact for that email me at jmichaels@remax.net
0 votes Thank Flag Link Wed Apr 16, 2014
Check your plan documents. Most plans allow for you to borrow up to a certain amount without paying a tax penalty. You simply pay the plan (in reality yourself since it's your funds) back with interest.
0 votes Thank Flag Link Wed Apr 9, 2014
Have you looked into loan programs that may be available to you? There are many great options, if you qualify. I'd be happy to help you!
Patty Romero
Castillo & Associates
0 votes Thank Flag Link Mon Apr 7, 2014

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.
0 votes Thank Flag Link Fri Apr 4, 2014
You can use some of these dollars for a purchase, including a primary residence. You will need to pay yourself interest, and repay the loan.
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.
0 votes Thank Flag Link Thu Apr 3, 2014
You should speak to your tax professional however if you are purchasing the property as an investment property you can possibly roll over the 401(K) into a self directed IRA and have the IRA purchase the property. There are tax laws that you will need to follow so you won't be charged the penalty or taxes on it. You cannot live in the property, it must be an investment property.
0 votes Thank Flag Link Wed Apr 2, 2014
Generally, you use non taxed funds to contribute to your 401K. At the minimum you will be charged income tax that you were able to avoid when you contributed to your 401K. There is a 10% penalty in addition but there are some exceptions to this penalty if you meet certain requirements and use the money to purchase a primary residence.

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.
Jeff Nobleza
Baird & Warner
773 677 5340
0 votes Thank Flag Link Wed Apr 2, 2014
This is a great question for your accountant, they will be able to explain in better detail any tax implication
0 votes Thank Flag Link Wed Apr 2, 2014
There are strict rules governing how you use retirement funds for a down payment. Consult with a well versed accountant and lender before proceeding.
0 votes Thank Flag Link Wed Apr 2, 2014
Real Estate Tax - Yes

Capital Gains tax after you sell it? - Confirm with your accountant or 401k provider
0 votes Thank Flag Link Wed Apr 2, 2014
That is definitely a question for an accountant or other certified financial advisor. If you need a referral to a CPA, you can e-mail me at GerryG@GStanleyRealEstate.com
0 votes Thank Flag Link Wed Apr 2, 2014
Speak with your 401k Provider to see what your options and your tax implications are. You may be able to avoid any tax or penalty
Sam Sharp
Senior VP of Mortgage Lending
Guaranteed Rate
773 290 0455
0 votes Thank Flag Link Wed Apr 2, 2014
Accountants do not respond on this site. You can call the IRS 800# and 'maybe' get a correct answer
0 votes Thank Flag Link Wed Apr 2, 2014
Consult with your financial person or accountant. Or your 401k person. There are penalties for early withdrawl and income tax payments often required.

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.
0 votes Thank Flag Link Wed Apr 2, 2014
Call your accountant ....that's the best you can so it for yourself
0 votes Thank Flag Link Wed Apr 2, 2014
I agree with Matthew, consult your accountant or tax adviser to better understand any possible tax implications.
0 votes Thank Flag Link Wed Apr 2, 2014

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!
0 votes Thank Flag Link Wed Apr 2, 2014
That is definitely an accountant question- Realtors wouldn't even try to answer that-
Got any real estate questions? I'd love to help.
0 votes Thank Flag Link Wed Apr 2, 2014
You should consult with your accountant and 401K administrator.
0 votes Thank Flag Link Wed Apr 2, 2014
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