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I got a question about Tax Exemption for New Home Buyer 401k and IRA

SuicidalClown 405 101 August 9, 2015 at 08:59 PM in Home & Home Improvement
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I read that you can withdraw 10k from your IRA if you are a new home buyer.

But what if I have both 401k and IRA? Is that mean I can take out 10k from each account?

and can i still get the California new home owner incentive/tax credit?

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#2
You can take money from your IRA whenever you want. The real question is what are the tax and penalty implications.
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#3
Quote from vbt View Post :
You can take money from your IRA whenever you want. The real question is what are the tax and penalty implications.
that's what I meant. You can remove money from 401k or IRA if you are a new home buyer without any penalties.,.
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#4
Quote from SuicidalClown View Post :
that's what I meant. You can remove money from 401k or IRA if you are a new home buyer without any penalties.,.
You can take a loan (up to half your balance I believe) from your 401k as a first time homebuyer without penalties, but you must pay that loan back (normally within 5 years, but within 90 days if you are fired or switch jobs). Some 401k plans offer a "hardship withdrawal" option, but you cannot put that money back in nor contribute to the 401k for 6 months after. You can take an early withdrawal from an IRA of up to $10k, but you'll pay taxes on that amount. Looks like there's also time frame limits as to when that money needs to be used.

In both cases, any loans or distributions you take are lost earnings opportunities. In addition, if you take a 401k loan and lose your job, that loan becomes due almost immediately. On top of your mortgage payment, a large loan may be tough or impossible to payback without employment.

Dipping into retirement accounts to purchase a house is almost always a bad idea. Generally, if you need to use your 401k or IRA for a down payment, it indicates that you cannot afford the house (at this time). You should find a different house, save more, and/or come up with the money elsewhere (e.g., gift from parents). While there may be some situations where it makes financial sense, they are few and far between and you should definitely consult with your financial advisor and/or tax professional before doing so.
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Marshall: Have the rest of you guys figured out by now that mmathis is the smartest guy on SlickDeals?
#5
Quote from mmathis View Post :
You can take a loan (up to half your balance I believe) from your 401k as a first time homebuyer without penalties, but you must pay that loan back (normally within 5 years, but within 90 days if you are fired or switch jobs). Some 401k plans offer a "hardship withdrawal" option, but you cannot put that money back in nor contribute to the 401k for 6 months after. You can take an early withdrawal from an IRA of up to $10k, but you'll pay taxes on that amount. Looks like there's also time frame limits as to when that money needs to be used.

In both cases, any loans or distributions you take are lost earnings opportunities. In addition, if you take a 401k loan and lose your job, that loan becomes due almost immediately. On top of your mortgage payment, a large loan may be tough or impossible to payback without employment.

Dipping into retirement accounts to purchase a house is almost always a bad idea. Generally, if you need to use your 401k or IRA for a down payment, it indicates that you cannot afford the house (at this time). You should find a different house, save more, and/or come up with the money elsewhere (e.g., gift from parents). While there may be some situations where it makes financial sense, they are few and far between and you should definitely consult with your financial advisor and/or tax professional before doing so.
Actually... it depends on your company administrator.

My company allows 50% up to $50k. But doing this is not recommended... you take out tax free money and need to replace it with taxes money and then when you withdrawl it you get taxes again.
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#6
I thought IRA you can take out as much as you have put in (minus interest earned) without penalty if you use it as downpayment for your home. I'm not 100% sure though so do your homework first. I'm not sure about 401k. I also don't recommend it, but to each their own.
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#8
Quote from boingyman View Post :
I thought IRA you can take out as much as you have put in (minus interest earned) without penalty if you use it as downpayment for your home. I'm not 100% sure though so do your homework first. I'm not sure about 401k. I also don't recommend it, but to each their own.
IRA is un taxed money..... so you think you can take untaxed money and buy a home with it? I think not.

I don't know the rules of a IRA but if you can take it out you will need to pay it back in a very structured way, just like a 401k.

BUT a ROTH IRA...you can always take what you put in, just no interest unless you want to pay the taxes and penalties.
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#9
Quote from joshuaNH View Post :
IRA is un taxed money..... so you think you can take untaxed money and buy a home with it? I think not.

I don't know the rules of a IRA but if you can take it out you will need to pay it back in a very structured way, just like a 401k.

BUT a ROTH IRA...you can always take what you put in, just no interest unless you want to pay the taxes and penalties.
With an traditional IRA, you can withdraw up to $10k for the purchase of a home, assuming you (nor your spouse) have not owned a principal home in the last 2 years. You will pay taxes on that amount (everything is contributed pre-tax, as you say), but there will be no penalties. You can not pay that amount back, nor make catch up contributions to replace it.

With a Roth IRA, you can withdraw up to $10k (including interest) penalty- and tax-free if you've had the IRA for at least 5 years, and meet the homebuyer requirements above. You can always withdraw Roth contributions penalty-free. Again, you can not pay that amount back, nor make catch up contributions to replace it.
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#10
Quote from mmathis View Post :
With an traditional IRA, you can withdraw up to $10k for the purchase of a home, assuming you (nor your spouse) have not owned a principal home in the last 2 years. You will pay taxes on that amount (everything is contributed pre-tax, as you say), but there will be no penalties. You can not pay that amount back, nor make catch up contributions to replace it.

With a Roth IRA, you can withdraw up to $10k (including interest) penalty- and tax-free if you've had the IRA for at least 5 years, and meet the homebuyer requirements above. You can always withdraw Roth contributions penalty-free. Again, you can not pay that amount back, nor make catch up contributions to replace it.

i am a little confused....

Roth IRA.
You put in $5K and five years later it is woth $12K, you can deduct $10K with out paying any taxes on it (or at least the additional $5k?)
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#11
Quote from joshuaNH View Post :
i am a little confused....

Roth IRA.
You put in $5K and five years later it is woth $12K, you can deduct $10K with out paying any taxes on it (or at least the additional $5k?)
If you are a first time homebuyer and are using it to buy a home, yes, you can withdraw $10k without paying penalties or taxes: http://www.bankrate.com/finance/t...r-ira.aspx
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#12
Quote from mmathis View Post :
If you are a first time homebuyer and are using it to buy a home, yes, you can withdraw $10k without paying penalties or taxes: http://www.bankrate.com/finance/t...r-ira.aspx
Wow.. that is a HUGE benifite (perhaps).


What do you think about taking aloan from your 401k? (assuming that you will not get fired and have the time to pay it back - 5 years)
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#13
Quote from joshuaNH View Post :
Wow.. that is a HUGE benifite (perhaps).


What do you think about taking aloan from your 401k? (assuming that you will not get fired and have the time to pay it back - 5 years)
Yeah, I was a little surprised about those exemptions on the IRAs as well. However, I don't see it as a benefit

Retirement is for retirement, IMO. The big power in retirement accounts is the compounded gains combined with the long time frame. Taking a loan from your 401k negates the gains that money could have realized for up to 5 years, and that's something you cannot get back. There are scenarios where a 401k loan makes financial sense, I'm sure, but your average consumer purchasing a house is not one of them. Save up more or buy less house.
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