401 K Early Dist-non Taxable

[gman]

It appears that early withdrawl penalties apply for first time home buyers if money is with drawn from the 401-k, but no penalty applies if money is drawn from the IRA. Am I reading the rules correctly?

Thanks

[Matt Sova]

IRA only

The first time homebuyer exclusion of the penalty applies ONLY to an IRA.

[Koss]

Yes

The exception to the early withdrawal penalty is applicable only to IRAs.

The notion that "you can take money out of your 401(k) to buy a house" flows from a different set of rules that governs pension plans generally, and has nothing to do with taxation.

ERISA controls whether the employer can even allow an early distribution while the employee is still working at the company. The same set of regulations also controls how much the employee can pull out.

The fact that the early distribution is permissible under the rules and regs that govern the pension plan doesn't mean that it is exempt from the 10% penalty.

BMK