Using 401(K) Or IRA For Down Payment

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Summary: You can't take money from your 401(k) or IRA retirement account, but you can borrow it if your company will let you. 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. 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.

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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Related Topics

• 401k, 
• down payment, 
• retirement

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