401-K early withdraw to pay home mortgage

[Art]

Has anyone heard of an penalty exception for this purpose? Taxpayer lost his job at the company where he had a 401-K. He is under age 55. He is having trouble making mortgage payment and wants to tap into the 401-K.

[ChEAr$]

A client called me about this late last year

Has anyone heard of an penalty exception for this purpose? Taxpayer lost his job at the company where he had a 401-K. He is under age 55. He is having trouble making mortgage payment and wants to tap into the 401-K.

and asked if it were a good move, since he and wife were concerned about possibly losing
jobs. I calculated the federal and state tax plus the 10% penalty for early withdrawal and
of course counseled him against it. After all, a 40% tax bite is a bunch.

But they did it anyway.

March 2009; it's TAX time!

You can now figure the answer to your question.

[gkaiseril]

Must be from an IRA

The exception is for a lifetime $10,000 IRA distribution for the "first" time home buyer, has not owned a principal residence during the past 2 years.

There is no allowance for making principal residence payments.

But one could look a the distributions from your traditional IRA that are part of a series of substantially equal payments over your life (or your life expectancy), or over the lives (or the joint life expectancies) of you and your beneficiary, without having to pay the 10% additional tax. It might not cover the entire cost but it could help. You should also carefully read all the rules about this exception.

[Art]

Thanks for the replies. I could not find anything in the existing law, but with all the discussion about helping those who have lost thier jobs and are having difficulity making house payments, this type of "tax help" may have been bantered about in the media. It is difficult to keep up this year with all the changes that have already been passed, apart from "proposals" "ideas" floating around.

[Burke]

Try not to watch the news.