Mortgage Question #4: Can I tap into my IRA or 401(k) plan for down payment money?
Under the 1997 Taxpayer Relief Act, first-time homebuyers can withdraw up to $10,000 penalty free from an individual retirement account (IRA) for a down payment to purchase a principal residence (though you might have to pay income tax on the amount withdrawn.) This $10,000 is a lifetime limit — and the money must be used within 120 days of the date you receive it. The law defines a first-time homeowner as someone who hasn’t owned a house for the past two years. If a couple is buying a home, both must be first-time homeowners. Ask your tax accountant for more information, or check IRS rules at www.irs.gov. Another source of down payment money is a loan against your 401(k) plan. Ask your employer or plan administrator if your plan allows loans. If it does, the maximum loan amount under the law is the one-half of your vested balance in the plan or $50,000, whichever is less. (If, however, you have less than $20,000 in your plan, your limit is the amount of your vested balance, but no mo
