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Ok, I need a tax expert here.

I have a colleague who wants to rollover a former employer's 401k money into a self-directed IRA. It is my understanding that the rules on IRA money recently changed to allow the use of IRA money to be withdrawn for the purchase of a taxpayer's first home.

If my friend rolls over his 401k money, then withdraws it to buy his home (say for a downpayment), will the 10% penalty for early withdrawal apply or not?
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Greetings, JMGee, and welcome. You asked:

<<If my friend rolls over his 401k money, then withdraws it to buy his home (say for a downpayment), will the 10% penalty for early withdrawal apply or not?>>

When the money hits the IRA, it is subject to IRA rules. Therefore, up to the $10K lifetime limit may be withdrawn without penalty to pay the expenses of a first-time home purchase. Income taxes will be due on such a withdrawal, though.

Regards..Pixy
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