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My wife and I are contemplating withdrawing from our 401k Rollover IRA to finance a home down payment. Could somone please help me with the consequences and advice on whether this is a good idea? Also, if you know what the penalties are and if it can be repaid. I saw the article mentioning 60-day loan without penalty (http://www.fool.com/personal-finance/taxes/2007/02/02/borrow-from-your-ira.aspx), but we may not be able to repay in 60 days - probably more like 6 months. What options do we have, if any?

Thanks so much for any advice you can offer!
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My wife and I are contemplating withdrawing from our 401k Rollover IRA to finance a home down payment. Could somone please help me with the consequences and advice on whether this is a good idea?

The withdrawal will be taxable income to you. You can withdraw $10k once in your lifetime for a first-time home purchase without paying a penalty. Any amount in excess of that would be penalized as well.

In general, I think it is a bad idea. You are reducing your retirement to spend it now.

Also, if you know what the penalties are and if it can be repaid.

The penalty is 10%. That is on top of the income tax. And your state may have a penalty as well. (In California, it's 2.5% for example.)

Once money is withdrawn from your IRA it cannot be repaid. With one exception that you touch on below.

I saw the article mentioning 60-day loan without penalty (http://www.fool.com/personal-finance/taxes/2007/02/02/borrow-from-your-ira.aspx), but we may not be able to repay in 60 days - probably more like 6 months.

This is a different beast. You can do a rollover of your IRA once in any 12 month period. You have 60 days to put the money back into an IRA, no if's, and's, or but's. 60 days. No more. If the 60th day is on a weekend or holiday, you need to put the money back before the weekend or holiday.

What options do we have, if any?

If you can put the money back in six months, I'd suggest doing things in a different order. First, put the money back. By that, I mean save the money for 6 months. Then you'll have the money you wanted to withdraw for the down payment. So you can just make the down payment and not need to fiddle with your IRA. Then go buy the house.

While you're at it, set aside the difference betweed your anticipated mortgage payment and your current rent/mortgage. IOW, live like you've already got the mortgage.

Thanks so much for any advice you can offer!

Hope some of this helps.

--Peter
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If the time-frame for returning money to rollover IRA is six months, why not work on the savings part now.


After 4.5 months, if needed, you can implement the 60-day rule plan.

After 6 months, you have your down payment and have not touched the IRA money.



Hohum








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