Is there a way to convert a 401K into a down payment on a fishing lodge resort without penalties? What are the options?

Similar questions: convert 401K payment fishing lodge resort penalties options.

You can not convert a 401K into a down payment, but in some rare cases you may be able to make a hardship withdrawal You can not make withdrawals from a 401K unless they are financial withdrawals or non-financial hardship withdrawals. So you can not convert a 401(k) into a down payment on a fishing lodge resort. If you are no longer working you can convert your 401(k) to an IRA and then make the first time homebuyer distribution providing you meet the requirements I have listed below for first time homebuyer distribution from an URL1 make a withdrawal from the 401k, you have to qualify for a hardship withdrawal and your plan has to allow one.

Some plans do not allow a hardship withdrawal. A hardship withdrawal may be made from a 401(k) only if the distributions is made on the account of an immediate and heavy financial need and the distribution is necessary to satisfy the financial need. The determination of whether you have an immediate and heavy financial need is whether you have other resources reasonably available to the meet the need based on your specific situation.

The distribution will not be treated as necessary to satisfy an immediate and heavy financial need if it can be satisfied from other resources that are reasonably available. So what you have to do is make a written representation that the need can not be relieved by: 1. Reimbursement of compensation by insurance or otherwise.

2. By reasonable liquidation of your assets.3.By stopping elective contributions 4. By other distributions or nontaxable loans from any other plans.5.

By loans from commercial sources. The regulations state that the distribution will be deemed to be necessary to meet a financial need if you have obtained all other distributions and nontaxable loans currently available under all of your other plans. Also, in the above cases, you still owe the 10% penalty for early withdrawal if you are under 59 1/2 and still have to pay income tax on the hardship withdrawal.

So you need to do the calculation to see how much you need to withdrawal so you have the amount you need after you pay the taxes, assuming you qualify for the withdrawal. If the above conditions are met, you can use the money for: A primary home purchase Tuition, room and board and fees for the next twelve months for you, your spouse, your dependents or children (even if they are no longer dependent upon you) To prevent eviction from your home or foreclosure on your primary residence Severe financial hardship Tax deductible medical expenses that are not reimbursed for you, your spouse or dependents. The rules for 401(k) are different than the rules for an IRA or a Roth IRA.

Under the IRA rules you can take a distribution for first time homebuyer. The purchase must be a principle residence. The person for whom it is a principle residence must be the owner of the IRA You must be a first time home buyer.

This means you can not have owned a home the past two years. The maximum allowed is $10,000. You still have to pay the tax, but the 10% penalty is eliminated.

There is also something called a non financial hardship withdrawal that avoids the 10% penalty, not the income tax, but you have to meet certain requirements.It does not sound like this is your case. They are: 1. You become totally and permanently disabled.2.

Your medical debts exceed 7.5% of you adjusted gross income. 3. A court has ordered you to give money to a divorced spouse, a child or a dependent.4.

You are permanently laid off, terminated, quit, or retire early in the same year you turn 55 or later. 5. You use the amortization, initialization, or minimum distribution tables to take equal payments for 5 years or until you reach 59 1/2, whichever comes last.So for example if you were 57 you would have to make the withdrawals until you were 62.

Then you could stop until age 70 1/2 when the Required Minimum Distributions start. IRA and 401(k) accounts were never designed as savings accounts. They are retirement accounts.

But, what happens in most cases is the IRA or 401(k) is funded to the maximum each year without allowing for other kinds of savings. Then when money is needed for something, the largest accumulation is most of the time in the 401(k) or the IRA. That is why the rules have been relaxed somewhat in allowing money to be taken from qualified plans, but the tax and penalty still remain unless you qualify for the first time homebuyer distribution, then you can avoid the 10% penalty.

So based on the information you have provided, your only option, if you are determined to buy the resort, is to leave you current job, (or where the 401(k) is now), roll it into an IRA and then take all the money from the IRA and pay the tax and penalty and use what is left for the lodge..

1 the only options are 1) IF the fishing lodge is the first home you are buying, AND IF the fishing lodge will be your primary residence, then you can take a withdrawal from a traditional 401K without a 10% penalty.2) IF the fishing lodge is the first home you are buying, AND IF the fishing lodge will be your primary residence, then you can take a withdrawal from a roth ira without penalty IF you had the roth ira for at least 5 years. Primary residence means the home you are buying (houseboat, fishing lodge, hole in the ground) is where you will be living for the better part of the year. fairmark.com/rothira/first.htm .

The only options are 1) IF the fishing lodge is the first home you are buying, AND IF the fishing lodge will be your primary residence, then you can take a withdrawal from a traditional 401K without a 10% penalty.2) IF the fishing lodge is the first home you are buying, AND IF the fishing lodge will be your primary residence, then you can take a withdrawal from a roth ira without penalty IF you had the roth ira for at least 5 years. Primary residence means the home you are buying (houseboat, fishing lodge, hole in the ground) is where you will be living for the better part of the year. fairmark.com/rothira/first.htm.

WEALTHADVISOR replied to post #1: 2 He wants to take the money from a 401(k), not an IRA. You have listed the rules for Roth IRA or regular IRA. There is no first timer homebuyer distribution rule for a 401(k).

He would have to leave his job and roll the 401(k) into an IRA and then make the first time homebuyer distribution up to a limit of $10,000 if he qualifies.

He wants to take the money from a 401(k), not an IRA. You have listed the rules for Roth IRA or regular IRA. There is no first timer homebuyer distribution rule for a 401(k).

He would have to leave his job and roll the 401(k) into an IRA and then make the first time homebuyer distribution up to a limit of $10,000 if he qualifies.

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