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Author: aj485 Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 81559  
Subject: Re: Simple question about 401k-to-IRA conversion Date: 2/25/2011 12:08 AM
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Just trying to put together a down payment on a house and deciding if I should use this money or not.

If you roll the 401(k) over into an IRA, you can withdraw up to $10k penalty free (but not tax free) for the purchase of a home if you are a first-time homebuyer. See IRS Pub 590

Actually - just thought of something... what if I rolled it over into my new company's 401k, and then took a loan? That seems legitimate. What do you think?

This is a possibility, if you are happy with the new 401(k) plan, fees and investment choices.

The risk is that if you leave your employer, either voluntarily or involutarily, you may be required to pay back the loan in full within 30 - 90 days or you will end up with a non-qualified distribution and you will owe taxes and a 10% penalty. So if you get the best job offer ever before you've paid off the loan, you may end up either having to turn the offer down, or end up paying the taxes and penalty. If you get laid off, you wouldn't even have the ability to make the choice. So unless you other funds to pay off the loan with, it could end up being an expensive loan.

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