Can I use my 401k to buy a house?

Can I use my 401k to buy a house?

The answer is yes. There are cases where you can use a limited amount of 401k to buy a house. Under the standard regulations of the 401k retirement savings plan, you are free to withdraw funds from your 401 (k) for any purpose once you have reached the age of 59.5 years.

Learn how to use your 401 (k) money to buy a house

Early retirement

There is no current law that prohibits you from withdrawing money from your 401k to buy a house, even if you have not reached retirement age. However, early withdrawals usually have an early withdrawal tax of 10%, plus any income tax that may be due. If you withdraw a large sum from a traditional account, total tax costs can make this an expensive option.

For example, let’s say you decide to withdraw $ 100,000 from your 401k account at the age of 52. If your income tax is 15%, you will owe $ 14,000 in income tax and an additional $ 10,000 due to the early withdrawal fee.

Standard distributions

The standard distributions are the withdrawals that you make from your retirement savings plan (such as 401 (k) sponsored by the employer) that are made after reaching retirement age. You can make standard distributions in any amount, although depending on the type of account you may be required to pay the income tax. Even so, there is no other charge for these withdrawals, remember that you must include the amount of the distribution in your income statement for that year.

Withdrawals

There are some exceptions to the 10% fine rate provided by the IRS that help users buy a home for themselves or their immediate family. These are called help withdrawals. In this case you can withdraw funds from your 401 (k) up to the amount of the initial payment of the house without incurring the penalty. However, the purchase of a house for adult children is not approved as a withdrawal of assistance.

Loans / Credits

There is another option to use your 401 (k) to buy a house: apply for a loan. You can choose to take a loan from your 401 (k) at any time, either before or after you have withdrawn. Generally, there is no need to pay the income tax on the loan amount, since you will pay the funds within a set period. In general, the term to pay 401 (k) loans is five years.