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Author: dpr56 Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76079  
Subject: 401k to fund home purchase Date: 3/28/2000 5:34 PM
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I have an IRA account that's adequate to fund retirement 100%. I also have a 401K account that I would like to make a withdrawal from to help pay for a new home purchase. I am well aware that I must pay income tax on the withdrawal but I would have to do that anyway when I withdraw from the 401K. My thinking is that aside from income taxes on the withdrawal I am really just transferring the Assets from 401K form into the form of real estate which is likely to appreciate at about the samr rate as my balanced IRA portfolio.

Question is whether a move like this makes any sense or are there other ways to rollover a 401K into real estate that I would live in and possibly even avoid taxes until the real estate is sold?
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Author: lectic One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 20705 of 76079
Subject: Re: 401k to fund home purchase Date: 3/28/2000 11:13 PM
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Do you know how to spell "prohibited transaction"? I don't think you can have a tax deferred plan funding your living quarters. I have seen some exotic work arounds on this and I think they are all subject to challenge, but perhaps Pixy has a different view. Also, how old are you? Since you didn't mention penalties I assume you are over 59 1/2.

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Author: TMFPixy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 20719 of 76079
Subject: Re: 401k to fund home purchase Date: 3/29/2000 9:01 AM
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Greetings, dpr56, and welcome. You wrote:

<<I have an IRA account that's adequate to fund retirement 100%. I also have a 401K account that I would like to make a withdrawal from to help pay for a new home purchase. I am well aware that I must pay income tax on the withdrawal but I would have to do that anyway when I withdraw from the 401K. My thinking is that aside from income taxes on the withdrawal I am really just transferring the Assets from 401K form into the form of real estate which is likely to appreciate at about the samr rate as my balanced IRA portfolio.

Question is whether a move like this makes any sense or are there other ways to rollover a 401K into real estate that I would live in and possibly even avoid taxes until the real estate is sold? >>


If you're making a straight withdrawal, then you will be taxed. There's no way to avoid that except to take a loan from the 401k. I know of no plan that would allow a retired employee to do that. Still, I suppose it's possible some plan somewhere does. And if yours is one, then you still don't win. The loan must be repaid to the plan with after-tax dollars. The interest you pay yourself with those after-tax dollars gets taxed again when you finally do take legitimate withdrawals from the 401k. And if you don't pay back the loan, then all the defaulted proceeds are considered a taxable distribution.

Regards..Pixy

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Author: TMFPixy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 20720 of 76079
Subject: Re: 401k to fund home purchase Date: 3/29/2000 9:02 AM
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Bill aka Lectic writes:

<<Do you know how to spell "prohibited transaction"? I don't think you can have a tax deferred plan funding your living quarters. I have seen some exotic work arounds on this and I think they are all subject to challenge, but perhaps Pixy has a different view.>>

No, I don't hold a different view. While it's not a prohibited transaction per se, the only way to avoid immediate taxation is through a loan from the plan. That has its own disadvantages as I described in my reply to the original poster.

Regards..Pixy

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