Don't withdraw, just borrow from your 401K! No taxes or penalties applied from a 401K Loan.

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Borrowing from Your 401K


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You may have more cash than you realize. When getting ready to make your down payment, you will look for cash wherever you can find it; every little bit helps. If you have a 401(k) account, you might be tempted to pull your money out and use it toward a down payment. Even after paying the taxes and IRS penalties on an early withdrawal, you could have a considerable sum of money available to use toward your home.

Fortunately, there is a better way to use your 401(k) to buy a home.

Instead of withdrawing your funds, you actually can borrow them from your 401(k). By taking a loan from your 401(k), you avoid having to pay taxes on the withdrawal, as well as the 10% penalty imposed by the IRS. The interest rate on your loan will be quite low, and you can repay on your own schedule.

Your 401(k) is one of the largest sources of cash that you have, even though it is locked in a retirement account. If you borrow from your 401(k) instead of withdrawing from it, you can get the cash you need without paying the taxes and penalties.