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Asked 11/1/2011
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Can we purchase a new primary residence by withdrawing funds from our 401k prior to selling our existing home? We need to downsize and lower payments prior to retirement in 7 years. We are likely underwater on our existing mortgage thus withdrawing from our 401k to purchase a new home seems the only way |
Answer 1/1 - Submitted 11/1/2011
Ouch, expensive way to go about doing it, particularly if you're under age 59.5. In addition to a hefty tax hit in the year you withdraw, you'll also have to pay a ten percent penalty for early withdrawal.
If you're still employed by the employer that sponsors your 401k they aren't goign to consider being upside down on your current mortgage a hardship that qualifies for a withdrawal. You may be able to borrow up to half your 401k balance, but that will only increase your monthly expenses as you repay it with deductions to your pay.
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