What we verified in “Using your 401(k) or IRA for a down payment: what it costs”

Statements and where we checked them

The statements with rules, figures or dates, with the exact place in the source and the date we checked them.

1. According to the IRS, if you take money from a traditional or Roth IRA before age 59½, you pay a 10% additional tax on the part that counts as income, unless an exception applies; that tax is reported on Form 5329 and Schedule 2 of Form 1040; if you qualify for an exception and your Form 1099-R does not show it with the correct code, you must file Form 5329 to claim it; and federal income tax is withheld from IRA distributions unless you elect out.

   Sources 1 · Topic no. 557, Additional tax on early distributions from traditional and Roth IRAs: 'you'll be assessed a 10% additional tax on early distributions'; 'The 10% additional tax is reported on Form 5329'; 'If you qualify for one of the exceptions to the 10% additional tax, but your Form 1099-R doesn't identify an exception'; 'you must file Form 5329 and Schedule 2 to claim the exception'; 'Federal income tax withholding is required for distributions from IRAs unless you elect out of withholding' · Checked October 31, 2026

2. According to the IRS, even if you are under age 59½, you do not pay the 10% additional tax on up to $10,000 of IRA distributions used to buy, build or rebuild a first home, if you use them to pay qualified acquisition costs before the close of the 120th day after you receive them, for the main home of a first-time homebuyer who is you, your spouse, or your or your spouse's child, grandchild, parent or other ancestor; your total first-home distributions over your lifetime cannot exceed $10,000; and if you and your spouse are both first-time homebuyers, each of you can take up to $10,000.

   Sources 3 · Publication 590-B (2025), chapter 1, Exceptions, 'First home': 'you don't have to pay the 10% additional tax on up to $10,000 of distributions you receive to buy, build, or rebuild a first home'; 'before the close of the 120th day after the day you received it'; 'Yourself. Your spouse. Your or your spouse's child. Your or your spouse's grandchild. Your or your spouse's parent or other ancestor'; 'total qualifying distributions can't be more than $10,000'; 'each of you can receive distributions up to $10,000' · Checked October 31, 2026

3. According to the IRS, qualified acquisition costs include buying, building or rebuilding the home and any usual or reasonable settlement, financing or other closing costs; you are generally a first-time homebuyer if you had no present interest in a main home during the 2-year period ending on the date of acquisition, and if you are married your spouse must also meet this; the date of acquisition is the day you enter into a binding contract to buy or construction begins; and if the purchase is canceled or delayed, you can generally put the money back into an IRA within 120 days without income tax or the 10% additional tax.

   Sources 3 · Publication 590-B (2025), 'Qualified acquisition costs': 'Costs of buying, building, or rebuilding a home. Any usual or reasonable settlement, financing, or other closing costs'; 'First-time homebuyer': 'no present interest in a main home during the 2-year period ending on the date of acquisition'; 'your spouse must also meet this no-ownership requirement'; 'Date of acquisition': 'You enter into a binding contract to buy the main home'; Tip: 'purchase or construction was canceled or delayed, you could generally contribute the amount of the distribution to an IRA within 120 days' · Checked October 31, 2026

4. According to the IRS, distributions from a traditional IRA are generally taxable in the year you receive them, with exceptions such as rollovers and the return of nondeductible contributions.

   Sources 3 · Publication 590-B (2025), chapter 1, 'Are Distributions Taxable?': 'In general, distributions from a traditional IRA are taxable in the year you receive them'; 'Exceptions'; 'The return of nondeductible contributions' · Checked October 31, 2026

5. According to the IRS, qualified Roth IRA distributions and distributions that return your regular contributions are not included in income; Roth distributions come first from regular contributions, then from conversions and rollovers, and last from earnings; and a distribution is qualified if it is made after the 5-year period beginning with the first year you contributed to a Roth and meets a condition such as the first-home requirements, with the $10,000 lifetime limit.

   Sources 3 · Publication 590-B (2025), chapter 2, 'Are Distributions Taxable?': 'You don't include in your gross income qualified distributions or distributions that are a return of your regular contributions'; 'Order the distributions as follows. Regular contributions. Conversion and rollover contributions'; 'Earnings on contributions'; 'What Are Qualified Distributions?': 'made after the 5-year period beginning with the first tax year for which a contribution was made'; 'One that meets the requirements listed under First home'; 'up to a $10,000 lifetime limit' · Checked October 31, 2026

6. In the IRS table of exceptions to the additional tax, the first-time homebuyer exception, up to $10,000, applies to IRAs but not to qualified workplace plans such as a 401(k).

   Sources 4 · Retirement topics - Exceptions to tax on early distributions, table: 'Homebuyers qualified first-time homebuyers, up to $10,000 no yes 72(t)(2)(F)' (columns: Qualified Plans, IRA) · Checked October 31, 2026

7. According to the IRS, the law imposes a 10% additional tax on certain early distributions from retirement plans, equal to 10% of the portion that is includible in income; early distributions are generally those before age 59½; and qualified plans include 401(k) and 403(b) plans and IRAs.

   Sources 2 · Topic no. 558, Additional tax on early distributions from retirement plans other than IRAs: 'the law imposes a 10% additional tax on certain early distributions'; 'equal to 10% of the portion of the distribution that's includible in gross income'; 'before reaching age 59½'; 'such as a section 401(k) plan'; 'A tax-sheltered annuity plan under section 403(b)' · Checked October 31, 2026

8. According to the IRS, loans are not permitted from IRAs, only from qualified plans such as 401(k) and 403(b) plans and governmental plans; a plan may offer loans but is not required to; the most it can lend is the lesser of $50,000 or the greater of $10,000 or 50% of your vested account balance; you generally repay within 5 years, in substantially equal payments of principal and interest made at least quarterly; and a loan to buy your principal residence may be repaid over more than 5 years.

   Sources 5 · Retirement plans FAQs regarding loans: 'Loans are not permitted from IRAs'; 'A qualified plan may, but is not required to provide for loans'; 'the greater of $10,000 or 50% of your vested account balance, or (2) $50,000, whichever is less'; 'Repayment of the loan must occur within 5 years'; 'paid at least quarterly'; 'A loan that is taken for the purpose of purchasing the employee’s principal residence may be able to be paid back over a period of more than 5 years' · Checked October 31, 2026

9. According to the IRS, a plan loan that is not repaid according to its terms is generally treated as a taxable distribution of the entire outstanding balance; and if the plan reduces your account by the unpaid amount (an offset) because the plan ends or you leave your job, you have until the due date of your tax return, including extensions, to roll that amount into another plan or an IRA.

   Sources 5 · Retirement plans FAQs regarding loans, Q5: 'A loan that is in default is generally treated as a taxable distribution from the plan of the entire outstanding balance of the loan (a “deemed distribution”)'; Q7: 'if the plan loan offset is due to plan termination or severance from employment'; 'you have until the due date, including extensions, for filing the Federal income tax return' · Checked October 31, 2026

10. According to the IRS, a plan may allow hardship distributions but is not required to; the distribution must be due to an immediate and heavy financial need and limited to the amount necessary; costs directly related to the purchase of your principal residence, excluding mortgage payments, count as such a need; hardship distributions are subject to income tax (unless they consist of Roth contributions) and may be subject to the 10% additional tax; and you cannot repay them to the plan or roll them over to another plan or an IRA.

    Sources 6 · Retirement topics - Hardship distributions: 'Although not required, a retirement plan may allow participants to receive hardship distributions'; 'Due to an immediate and heavy financial need. Limited to the amount necessary'; 'Costs directly related to the purchase of an employee’s principal residence (excluding mortgage payments)'; 'Hardship distributions are subject to income taxes (unless they consist of Roth contributions). They may also be subject to a 10% additional tax'; 'can't: repay it to the plan, or roll it over to another plan or an IRA' · Checked October 31, 2026

11. According to Fannie Mae, vested funds from an IRA or a 401(k) are an acceptable source for the down payment, closing costs and reserves; the lender verifies that you own the account, that it is vested and that it allows withdrawals regardless of current employment; and if you use the account only for reserves, the funds do not have to be withdrawn.

    Sources 7 · Selling Guide B3-4.3-03, Retirement Accounts (06/30/2015): 'Vested funds from individual retirement accounts (IRA/SEP/Keogh accounts) and tax-favored retirement savings accounts (401(k) accounts) are acceptable sources of funds for the down payment, closing costs, and reserves'; 'confirm that the account is vested and allows withdrawals regardless of current employment status'; 'Fannie Mae does not require the funds to be withdrawn' · Checked October 31, 2026

12. According to Fannie Mae, if you use your 401(k) or IRA as security for a loan, the lender does not have to count that payment in your monthly debts if it gets a copy of the loan document showing the account as collateral; but if you use the same account for reserves, the lender subtracts the loan proceeds and fees from the balance.

    Sources 8 · Selling Guide B3-6-05, Monthly Debt Obligations, 'Loans Secured by Financial Assets': '401(k) accounts, individual retirement accounts'; 'The lender is not required to include this contingent liability as part of the borrower’s recurring monthly debt obligations provided the lender obtains a copy of the applicable loan instrument'; 'the lender must reduce the value of the asset (the account balance, in most cases) by the proceeds from the secured loan and any related fees' · Checked October 31, 2026

13. According to HUD Handbook 4000.1, on an FHA loan the lender may count up to 60 percent of the value of your retirement accounts, less any existing loans, unless you provide conclusive evidence that you can withdraw more after taxes and penalties; and it asks for your most recent monthly or quarterly statement and the withdrawal and loan terms.

    Sources 9 · Handbook 4000.1 (last revised August 12, 2026), II.A.4, '(C) Retirement Accounts (TOTAL)', p. 257: 'The Mortgagee may include up to 60 percent of the value of assets, less any existing loans'; 'unless the Borrower provides conclusive evidence that a higher percentage may be withdrawn after subtracting any federal income tax and withdrawal penalties'; 'the most recent monthly or quarterly statement' · Checked October 31, 2026

14. According to the IRS, the VITA and TCE programs offer free basic tax return preparation to qualified individuals.

    Sources 10 · Free tax return preparation for qualifying taxpayers: 'offer free basic tax return preparation to qualified individuals' · Checked October 31, 2026

15. According to the CFPB, the counseling agencies in its search tool are approved by HUD and offer independent advice, often at little or no cost, on buying a home, renting, defaults, forbearances, foreclosures and credit; you search by ZIP code; and not every agency offers every service.

    Sources 11 · Find a Housing Counselor: 'approved by the U.S. Department of Housing and Urban Development (HUD)'; 'offer independent advice, often at little or no cost to you'; 'buying a home, renting, defaults, forbearances, foreclosures, and credit issues'; 'Search by ZIP code'; 'Not every housing counselor offers all services' · Checked October 31, 2026