First Time Home Buyer Rules for a solo 401k and an IRA

Here are differences between taking a distribution from a 401k including a solo 401k vs an IRA and using the funds towards the purchase of your primary home/residence.

If an IRA (Code § 72(t)(2)(E),(F))

  • The maximum distribution is $10K (limit applies per IRA holder so $20K combined if both spouses use their respective IRAs)
  • The early 10% distribution penalty does not apply if the IRA holder is under age 59 1/2.
  • Federal and state taxes still apply

 

If a 401k ( See below and CLICK HERE to view the IRS page.)

  • Only possible if on account of hardship, but the 10% early distribution penalty applies as well as federal and state income taxes.
  • A distribution is deemed to be on account of an immediate and heavy financial need of the employee if the distribution is for:
  • Expenses for medical care previously incurred by the employee, the employee’s spouse, or any dependents of the employee or necessary for these persons to obtain medical care;
  • Costs directly related to the purchase of a principal residence for the employee (excluding mortgage payments);
  • Payment of tuition, related educational fees, and room and board expenses, for the next 12 months of postsecondary education for the employee, or the employee’s spouse, children, or dependents;
  • Payments necessary to prevent the eviction of the employee from the employee’s principal residence or foreclosure on the mortgage on that residence;
  • Funeral expenses; or
  • Certain expenses relating to the repair of damage to the employee’s principal residence.

About Mark Nolan

Each day I speak with energetic entrepreneurs looking to take the plunge into a new venture and small business owners eager to take control of their retirement savings. I am passionate about helping others find their financial independence. Having worked for over 20 years with some of the top retirement account custodian and insurance companies I have a deep and extensive knowledge of the complexities of self-directed 401ks and IRAs as well as retirement plan regulations. Learn more about Mark Nolan and My Solo 401k Financial >>

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