IRA Penalty - Homebuying

[Golden Rocket]

Taxpayer, age 29, withdrew $10,000 from 401k plan for downpayment on buying his first house.

He applied for the loan but did not put up ANY of the money with his loan application, not even earnest money.

Loan was rejected because House needed substantial basement repair from water damage which occurred in the great Tennessee flood of May 2, 2010. Taxpayer paid part of this money to fix water damage, and as of the end of 2010, loan had still not been approved.

Does taxpayer qualify for the First-Time Homebuyer Exemption from the 10% penalty.

[BP.]

Taxpayer, age 29, withdrew $10,000 from 401k plan for downpayment on buying his first house.

Does taxpayer qualify for the First-Time Homebuyer Exemption from the 10% penalty.

TTB 13-3-#9. I believe this applies just to IRA's.

[Snaggletooth]

Thanks BP

for the cite in TTB. We are aware of the $10,000 exemption, but due to the fact that the purchase was not fully consummated, will this fly?

[rgtaxservice]

Taxpayer, age 29, withdrew $10,000 from 401k plan for downpayment on buying his first house.

Does taxpayer qualify for the First-Time Homebuyer Exemption from the 10% penalty.

The 72(t) exception applies only to IRA withdrawls...not 401(k) withdrawls.

[Nashville]

Strategy

Strategy arising from this:

Roll over (at least) $10,000 from 401k plan to private IRA.

Then withdraw $10,000 for purchase of new home.

[Lion]

Borrow

Or, borrow from your 401(k) if your plan allows. Borrowing for a home isn't subject to the five-year repayment provision.

[New York Enrolled Agent]

Strategy arising from this:

Roll over (at least) $10,000 from 401k plan to private IRA.

Then withdraw $10,000 for purchase of new home.

Generally only a hardship withdrawal from a 401K plan is allowed to the taxpayer while working. Hardship withdrawals can not be rolled over into an IRA. §402(c)(4)