401k Withdrawal, avoiding fees and extra taxes?

-I am considering withdrawing all my funds from my 401k, (about $10,000) to purchase a home. I read that this may avoid extra taxes and fees but I havent found the actual clause from the IRS. Can someone please help.



Basically I want to change my investment type from stocks to real estate, or anything else that will help me withdraw the funds and limit the penalty fees and taxes.



Thanks!You can't avoid the taxes, except by taking the money out in a year that you almost no income. (Even $10,000 is enough to cause you to owe.) Clearly if you are trying to buy a house, that's unlikely.



As for the penalty, you can't avoid it on a 401K. Only IRAs have the first time buyer exception. You'd have to roll the 401K to an IRA *first* and then withdraw it. If you take the money directly from the 401K, you'd owe the penalty.



BTW, your house is your house. It is NOT an investment. Once you withdraw the money and buy the house, it's spent. It's not diversification.You can't avoid the tax. You have to pay the 10% penalty unless you either roll it over into a rollover traditional IRA, or wait until you're 59-1/2. You can't do what you want to do.



Up to $10k can be withdrawn without penalty from an IRA, not a 401K, for a down payment on a first home that's your residence. That might be what you read and are thinking of.
If you withdraw the $10,000, you cannot avoid the taxes - your employer will withhold 20% of the withdrawal and the $10,000 will have to be claimed as income on your tax return for 2011.



If you are using the withdrawal to pay for a primary residence, you can avoid the 10% penalty.
Taxes are always due on a 401k withdrawal.



There is also a 10% penalty if you do not meet one of the exceptions.



Buying a home IS NOT an exception to paying the 10% penalty on a 401k withdrawal.
You can't do that. Whatever you read you misunderstood. Read IRS Pub 575