Ask TaxMama.Com Tax Information With A Mother's Touch Published by Eva Rosenberg, MBA, EA Volume 4, Issue 176        August 23, 2002

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Drawing from 401k » From: Indianapolis, IN Dear TaxMama: I am originally from California and own two sets of rental properties there.I'm currently living in an apartment in Indiana. Since the rental property is not my primary residance, can I take money from my retirement and 401K plans to fund a down payment on the purchase of a home without the having to pay the penalties for early withdrawal? And, would it make a difference if I were to relocate and purchase the new home in California? Steve Dear Steve, Under NO circumstances pull money out of your 401k for a down payment on your home. You can pull money, up to $10,000, from an IRA and avoid the early withdrawal penalties. But you will still have to pay taxes on that money. OR, you could be really clever and BORROW money from your 401k for the down payment. BUT You'd better be sure you're going to be at that job long enough to pay the money back - or you will be hit with taxes and penalties on the early withdrawal. Be sure it's spelled out that it's a loan. That way, you avoid all taxes on the money - and you just end up paying yourself back. And, Steve, you are free to live wherever you like. You can stay in Indiana, or anywhere. Just, hang on to the job if you're going to borrow that money, OK? If you do some searches in TaxMama.com you'll find more discussions, some at length, about this issue. Best wishes, Eva Rosenberg Your TaxMama

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