Level 6

Buying a house with 401K

Forum|Forum|2 years ago
February 29, 2024
4 replies
19 views

I have a customer that pulled 60k from 401k to purchase a house. This is not their first home. They were under the understanding they could pull the 60k and not be taxed. Am I missing something?

ProSeries Professional

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IRonMaN

Level 15

You aren’t missing anything but they were. It’s taxable

Slava Ukraini!

J

judys3Author

Level 6

If it was a first time home?

IRonMaN

Level 15

Still taxable

Slava Ukraini!

dkh

Level 15

Wouldn't have been taxable if they'd taken it out as a loan from the 401k

T

TaxGuyBill

Level 15

@judys3 wrote:

from 401k to purchase a house ... They were under the understanding they could pull the 60k and not be taxed.

Some taxpayers misunderstand what a "hardship withdrawal" means. In most cases, a taxpayer can't withdraw from their 401(k) through their employer unless it is a "hardship withdrawal". Purchasing a principal residence qualifies as a "hardship withdrawal", which allows the taxpayer to withdraw money.

But they misunderstand that a "hardship withdrawal" does not change the fact it is taxable and potentially subject to the 10% penalty.

T

Terry53029

Intuit Community Champion

Just a note on what the IRS considers " first time " If you haven't bought a home in last two years the IRS considers it first time.

dkh

Level 15

@Terry53029 it's has not "owned" there is a difference between owned and bought

T

Terry53029

Intuit Community Champion

@dkh The actual meaning is in IRS Code 72(t)(2)(F) and the meaning of first time home buyer in that code is "Qualified first-time homebuyer distributions For purposes of paragraph (2)(F)— (A) In general The term “qualified first-time homebuyer distribution” means any payment or distribution received by an individual to the extent such payment or distribution is used by the individual before the close of the 120th day after the day on which such payment or distribution is received to pay qualified acquisition costs with respect to a principal residence"

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