Profile picture for bayareaca

Withdrawing from IRA and 401k for down payment

Hello!

My wife and I are considering purchasing our first home in San Jose, CA, in the near future. I've heard about the provisions for first time buyers to withdraw from IRA and/or 401k, without paying the penalty within some limitations. Most of the online resources address borrowing from one or the other, but not both; I was hoping someone here can verify if I understand this correctly:

1) My traditional IRA balance is about $7,000. Since this is below $10,000, I would like to withdraw the full amount.

2) My 401k loanable balance is approximately $2000 (50% of the total balance). I would like to withdraw this $2000.

3) My wife's 401k loanable balance is over $10,000. She would like to withdraw all $10,000.

Does anyone see any problems with this? More specifically:

a) is it okay for me to withdraw from both IRA and 401k (knowing full well the tax implications and loan repayment condition)?

b) since it'd be the first home for both of us, both of us can take advantage of this provision by withdrawing up to 2 x $10,000 = $20,000 , correct?

Thanks a lot for reading. I appreciate any help!

Regards,
bayareaca
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September 30 2010 - Willow Glen
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Answers (6)

I agree with the other posters that you must seek the advice of your accountant/CPA to find out the tax ramifications.  One other option to consider is a 401k loan.  Check with your company's HR department to see if they're available to you.  Good luck!

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November 21 2010
Profile picture for shasta_steve
You can also pull money out of your IRA for up to 60 days.  When I bought my last house I was going to put 10% down but decided it was best to do 20%.  The problem was I had to sell some property I own overseas and it would take a month or so to do it.   I pulled 30k out of my IRA but replaced it before 60 days so I did not have any taxes to pay or penalties.  

This may not be the best idea but if you need a short term bridge loan it can really help. 
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November 20 2010
Do not withdraw anything from any of the retirement accounts until you check with the procedure required by each of the funds.

With my Clients that have used their retirement accounts for down payments, the funds required them to be ready to close escrow and have copies of their HUD estimated closing statement prior to releasing the money.
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November 20 2010
The best resource for your own research before going to a CPA is to read the IRS publication directly. The latest posted  on IRS.gov is for 2009
http://www.irs.gov/pub/irs-pdf/p590.pdf

Says on page 53.
"If both you and your spouse are first-time homebuyers (defined later), each of you can receive distributions up to $10,000 for a first home without having to pay the 10% additional tax."

Good luck.
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November 20 2010
Agree with Sunnyview's answer - first and foremost consult a CPA to get full picture of taxation, any unexpected issues, lost opportunity,  etc. 

Also, ensure you are familiar with the repayment provisions of your plan. Do you pay back in installments?  or a lump sum??? If installments are required for pay back, ask your loan officer if this payment will count on your income to debt ratio?  If you left for another job, can this loan and 401K be left behind and payments continued? 

Any acceleration of the loan if you leave the company voluntarily or involuntarily.

   Do you have any other sources of funds for down payment?  Answers to these questions, understanding all aspects of your 401k, IRA plan and meeting with your CPA & loan officer will help you understand the total picture.
   
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November 04 2010
Profile picture for sunnyview
I think you need the advice of a CPA. The withdrawal of IRA funds for a down payment is explained as a one time up to 10,000 no penalty distribution for the purposes of buying a house. However, I do not think you can withdraw it from two IRA's according to this site here in order to double your down to 20,000, but I am not an accountant.


You also need to get solid advice on the IRA loan aspect of your plan. The tax codes when you start mixing them together in different sections get very complicated so it is best to get qualified advice up front to avoid any trouble.
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September 30 2010
 
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