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» From: San Juan, Puerto Rico Dear TaxMama: Really appreciate your tax assistance. I have $40,000 in a 401k from a previous job. Would like to use it as downpayment on a home purchase. If I do that, will there be an IRS Penalty, or is that type of use allowed without the withdrawal penalty? Thanks again, Keith Hi Keith, You must have access to cheaper money. Really. If you draw the money, yes, there will be both taxes and a penalty. If you roll the account over to an IRA, you can draw up to $10,000 without IRS penalties. But, you'll still have taxes due - at least 25% - plus any Puerto Rico taxes. If you can borrow money, you'd pay about 8% - and the interest will be deductible. There is ONE strategy that won't cost you taxes, penalty or interest. But you'd have to be VERY careful to get it right. Roll the money into an IRA. Draw the money from the IRA for the down payment at the very last possible moment. Fund the escrow/buy the property. IMMEDIATELY get an equity line on the property and PUT THE MONEY BACK into the IRA in less than 60 days. Do that, and you've got it made. Miss it by even one day, and .... Best wishes, Eva Rosenberg Your TaxMama  |
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