I transferred jobs recently and need to move a lot of money from old 401k to either new 401k or IRA. But I want to take out about 40k to add to a down payment for first home. Which is better in terms of tax ramification? Or any other suggestions. Thanks
Eric: I read all the previous answers and comments in addition to your question. So you are finally out from under paying your parents debt, that was nice of you. But you have very little savings.
Tighten your belt and save as much as you can in the next year. At your income level, by cutting expenses, you should be able to save up $40,000-$50,000 in less than a year. Once you do that, then buy the house.
If you take the money out of retirement accounts you will have to pay a 10% penalty on the $30,000 from IRA plus pay tax on the $40,000 added to your income for this year in addition to your normal income tax. That would be around $9,000 in additional taxes, maybe more.
using an IRA to buy a first house eliminates the 10% penalty for early withdrawal, either one will be taxable to you when you take the distribution
Choose whichever had the LOWER rate of return.
I transferred jobs recently
Have you check to see if you can get a mortgage?? Long term steady employment is one of the 1st things a lender checks.
There's a saying out there. If you can't afford a house without raiding your retirement accounts, then you can't afford a house.
IRA – you won't pay the 10% penalty on the first $10K. From a 401K, you will.
If you can't afford to get down payment, closing costs, move in costs THEN seriously u need to keep Renting small safe inexpensive apartment .
Taking out from either Incur large TAX bill and penalties due.
Keep renting until u can actually afford a house.
If you "must" an IRA is better.
You can take $10,000 from an IRA for the purchase of a house, if you can prove that it is cost effective to do so. This would mean lower interest rate or fees. Or ability to be approved because you have a lower down payment.
– you will not owe the penalty on this money but you will owe the taxes.
Always move the money into an IRA when you have a chance. Many more plan options and not attached to an employer.
Suggestion = don't keep all your investment money in retirement accounts, you will need money throughout the course of your life for different purchases.
If you can borrow from your 401k and you think your job is solid, that would be a better choice because the loan is non-taxable and you pay yourself back. If you lose your job the remaining balance of the loan is recharacterized as a distribution and therefore taxable. Money you take out of your IRA will be added to the rest of your taxable income, and you could lose a lot of it to taxes so be careful if you decide to go that route.
aren't those, basicly the same thing.???