If I take funds from my 401k to use for a dwnpymnt for my 1st house what kind of taxes Im looking at?

Asked by Dana Domaty, Passaic, NJ Fri Jun 12, 2009

Would this benefit me or not? what are the tax implications?

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Donald Patte…, , 07050
Fri Jun 12, 2009
Put simply--yes. You will be taxed at the percentage rate for which your current income qualifies--plus the amount added to that sum for the taxable year. Do you qualify for the famous first ime home owner's tax credit? If so, that credit will more than offset the taxes on the 401K sum you extract for the down. In fact, over the term of the loan, you'll be saving tens of thousands. This is one of those one-sided, no real downside questions. Use that money to get into a buyer-advantaged market; you'll never regret it!
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Robert Fine, , Staten Island, NY
Fri Jun 12, 2009
Hi Dana,
Check with your accountant, or financial planner, or your HR dept. if you have one. I recall that there was an exemption to take money for a home and also if you have a Roth IRA which is taxed differently. And of course if your older than 59 1/2 the rules are different.
Call me, Robert at VIP Real Estate in Staten Island, 718-967-2600 x312, and I can recommend some local advisors for you.
Bob
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Luke Allison, , Asheville, NC
Fri Jun 12, 2009
Hi Dana-
There are not too many accountants and financial advisors on Trulia so I will do my best to answer but at the same time give you the disclosure, "Check with your financial advisor..."

You can take funds from your 401k in 2 general ways - either a loan or as income. If you take the funds as income then there is typically a 10% penalty for the withdrawal along with the funds being taxed at your standard tax rates based on your income level. You will get a 1099 for the distribution and then insert it on your tax return. The only savings you will get is that you won't pay SSI or payroll taxes.

Other than that, you can get a loan from your 401k, which is paid back at a pretty moderate interest rate. I do not know if there is a penalty for withdrawal since the funds are paid back.

I hope that advice helps and that you end up buying the home of your dreams. Good Luck!

Luke Allison
Bank of America Home Loans
828-777-8828
luke.allison@bankofamerica.com
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