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Liquidating 401k to buy home

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If the account is at least five years old, you’re allowed to put up to ,000 in earnings from your Roth IRA toward a first-time home purchase, without tax or penalty, as long as it is used within 120 days of withdrawal.(You’re also allowed to use that amount from a traditional IRA, with no account age requirement, though you will pay taxes on the distribution from that type of account.You don’t want to walk into a home drained of all available cash.As any current homeowner will tell you, maintenance issues will pop up — always, it seems, right after you close the deal.

The median price of a home today ranges from 8,900 to 2,500, depending on where you live [source: National Association of Realtors].So if you open a Roth in your 20s and allow those contributions to grow with investment income over 40 or 50 years, you’re accumulating a great deal of money — money you’ll never have to pay taxes on, if distributions are taken according to IRS rules.Taking out ,000 for a down payment doesn’t seem like much, but the “opportunity cost” is surprising: Left invested over 40 years, that ,000 could turn into nearly 0,000 with a 7% annual return. (Double that, by the way, if you and your spouse both take this route.) When interest rates are low, financing more of your home isn’t necessarily a bad thing — plus, mortgage interest is tax-deductible.The long stretch of rock-bottom interest rates might come to a close soon.In the mortgage market, that means buyers who haven’t yet jumped into homeownership are facing what may be their last chance to do so at rates below 4%.You can, however, use it to buy a primary residence for yourself, and in some cases, you can buy residences for family members, too.