Early Withdrawal Roth Ira

May 3rd, 2008

Question: What is for first-time homeowner – withdrawal from IRA or loan from 401K?

I can borrow $50,000 from my 401k for my new home. What I am wondering is – is it better to borrow $40,000 from my 401k and then take an Early Withdrawal $10,000 from my Roth IRA, or is it better to borrow $50,000 from my 401k? It is a first home so there should be no tax penalties associated with either method.

Thanks -

Answer: Depending on how long you’ve had the Roth IRA, you may be able to withdraw some or all of that without paying taxes.

Since the $50,000 is being borrowed from you and payed back to you (with interest), I’d go that route, unless you can withdraw the $10,000 tax-free from the Roth. Then it is your call

The other consideration is the monthly payment – you’d reduce your monthly repayment by around $200 if you can withdraw the $10,000 from your Roth tax-free.

Best wishes!

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