Q: Is it possible to take money out of a 401(k) plan or IRA without having to pay a penalty, if you apply the money towards a down payment?
Is this something you would suggest?
A: You can’t take money from a 401(k) or IRA retirement account. You can only borrow – if your company will let you. In general, companies decide the rules for their 401(k) programs, including whether or not you can borrow from them for the purchase of a first home.
Federal law currently permits you to borrow up to $10,000 from an IRA for the purchase of a first home, without paying a penalty.
Overall, I think borrowing from a 401(k) or IRA should be the absolute last place you turn when it comes to scraping together cash for a down payment. I’d much rather see you get a 103 percent loan from a national lender than borrow against your retirement funds.
But if you’re faced with the choice of not buying a home or borrowing from yourself, then you should use your IRA cash or talk to your 401(k) plan administrator about borrowing cash from your account.
March 1, 2001
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