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.
