[kofficer]

Has anyone done this? and if so, did you just ask for a check from your retirement fund, or did you do it differently from that? I am 65, and we will probably be using this money next year, when I am 66.

leeotampa

[Bill-n-Brillo]

Originally Posted by kofficer

Has anyone done this? and if so, did you just ask for a check from your retirement fund, or did you do it differently from that? I am 65, and we will probably be using this money next year, when I am 66.

leeotampa

Best to check with the entity holding your 401k account re: drawing on your 401k - they can certainly give you a definitive answer.

Be aware of the tax implications of 401k withdrawals.

If you want to lower your potential tax rate......and if the timing of your need for the money fits......consider splitting the withdrawal into two parts - the first towards the end of one year and the second at the beginning of the following year. That way it won't be such a big hit all in one year.

Bill

[buzzy]

Originally Posted by kofficer

Has anyone done this? and if so, did you just ask for a check from your retirement fund, or did you do it differently from that? I am 65, and we will probably be using this money next year, when I am 66.

leeotampa

In January I did that at age 66. I had retired from a (third party) pension management company, and had both a 401(k) and a rollover IRA at the company. I took the money from the 401(k) because it had a bigger balance. That was unfortunate, because the minimum Fed withholding tax on a 401(k) was 20%. That is, I needed to withdraw roughly 20% more than the down payment to cover the tax burden. Not that a withdrawal from an IRA has no tax consequences, but I could have had as little as 10% withholding taken out.

Well, the deal is done, and I'll find out at tax time if 20% was too much or just right.

[rjm1cc]

The money will be paid directly to you from the 401k and the 20% withholding tax will be taken out of the check they send you. You have no option.

However, you could roll the 401k money to an IRA (if you do not have one open one at your local bank or your brokerage company). Then you can withdraw the funds from the IRA. You will not be required to have 20% withheld. You will owe taxes at year end so you might want to adjust your estimated payments.

To roll the money you fill out a form with the IRA company and they will get your 401k money. Be sure the 401k does not issue a check to you. They have to make it to your new IRA. This is not a big deal for the IRA company. If you are not sure about what to do use a local bank that you can walk into and talk to a person. Take your 401k statement with you.

[pauld315]

I know this is not your particular case but it may help others. If you are over 55 and under 59 1/2 and retired, you can begin to take withdrawals from your 401 K without penalty. This is not the case for an IRA, You will pay a penalty withdrawing from an IRA before 59 1/2. Therefore, if you are younger than 59 1/2 and want to withdraw money for a down payment you need to do it from a 401 K. If you are older then it is wiser to transfer the money to an IRA and withdraw it from there for the tax savings.

[kofficer]

Thanks for this. We were thinking of going in that direction. Our local credit union has retirement IRAS, and if you put it there, and then buy CDs, when you break them early, they don't penalize you at all. Just give you your prorated interest. As we don't know exactly when we may need the money next year, I think we are doing to do this. We won't make much on CDs, but I'm not making anything on my 401K, rather the other way.
Thanks for your answer.