I was speaking with one of my co-workers and they were telling me that you could withdraw money from your 401k account in order to place a down payment for a home. They said that if it is used for a down payment for a home then it isn't taxed and doesn't have to be repaid.  I haven't been able to find any information that proves this is true, have any of you heard of this practice before? 

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Yes you can if you are a qualified first time home buyer. The limit is up to 10K and if you are under 59 1/2 years old you will pay the Federal Tax penalty 10% tax on that money if you use your 401K and probably state taxes as well where applicable (check your state tax rules). However, if you take it from your IRA, you will not be penalized for the 10%, if you are qualified first time home buyer. For more details, see https://www.irs.gov/retirement...-early-distributions.

The key is for first time home buyers, you are allowed to take up to $10,000. If you are married, you and your spouse can take the $10,000, that is, $20K between the two. Again, the caveat is which account you use and whether you will be penalized for taking that money from that account if you do not meet the criteria of being 59 1/2 years old or older. Do your research before jumping into the pool. Good luck.

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Theodora
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