Tax Experts

401(k) Withdrawal for a Down Payment: Is It Penalty Free?

By Kevin McCormally, Editorial Director, Kiplinger.com

March 16, 2008

Q. I understand withdrawals from a 401(k) before age 55 are penalty free if used for the down payment of a home. How and where do I report such withdrawal to avoid the penalty?

Kevin's Answer:

Sorry, but the exception to the 10% penalty that applies to up to $10,000 withdrawn from an IRA prior to age 59 1/2 for the purchase of a first home does NOT apply to premature withdrawals from a 401(k).

Such 401(k) withdrawals are taxed and penalized. You figure the penalty on Form 5329

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