OP,

Please further explain the situation. Your original post is
filled with early withdrawal penalties, ordinary income
taxes, points on mortgages, massive prepayment penalties,
high closing costs, etc, etc. These things always make me
nervous.

Your 401(k) is with a previous employer, roll it over
immediately. Have you taken advantage of the $10k for
qualified closing costs on a house from an IRA in the past?
What do you have available in the form of tax deductable
HELOCs and such once you own the home? Do you have a current
401(k) available that may have low interest loan provisions?

It sounds like your going to end up spending $50k to get
into a new house and almost none of it will go towards
equity. Is it imperative that you move?

I don't understand how $40k is going to only be worth $8k
after taxes (even 10% penalty and high tax brackets don't
amount to $32k). Please explain the reasoning.

Your goal should NOT be "to not pay any taxes." Your goal
SHOULD be to make evey dollar you have work as efficiently
as it possibly can. Spending $10 to avoid $9 in taxes will
only do yourself harm. Also, contrary to popular belief,
paying off debt is not always your best answer. 10% is not
that high of a rate (especially for a short term situation).
It doesn't sound like the debt is that large. Once again
spending $10 in penalties/taxes to avoid $9 of interest
expense is unwise.

You may want to completely lay out your situation (with alot
of detail) and get a better analysis from the groups before
proceeding although I get the feeling you may not like what
they have to say. This sort of situation has also been
discussed at length on misc.invest.financial-planning

good luck

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<oregon747[at]gmail.com> wrote:

- quote -

We interrupt with an important bulletin. Whatever you wind
up doing, do a DIRECT rollover from the 401(k) to a
traditional IRA first. Then take the money from the IRA.
This will exempt $10,000 from the premature distribution
penalty, thus saving you $1,000 in taxes. This exemption
applies to distributions from IRAs, but not from 401(k)'s.
See IRS Publications 575 and 590.

- quote -

Can you restate this? I'm having trouble figuring out
exactly what you're asking. If you take more than $10,000
you're going to owe a premature distribution penalty
regardless of what else happens on your return.

--
Phil Marti
Clarksburg, MD

<< ================================================== ===== > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

Well before I make the big plunge I am in need of some help
and second opinions are always handy. I am buying a home
and must pay 20K in prepayment penalties and another 17K in
closing costs. To get the montlhy payment I can afford on a
440K loan I will need to withdraw from my previous employers
401K plan. My plan is to pull out the minimum amount to
cover the closing and to pay off car/visa debt that I am
inheriting. If I pull out $40K (only 8K after tax) from my
401K how much will I need in mortgage interest & points to
completely offset what is withdrawn from the 401K for the
purposes to determine adjusted . The goal here is to NOT
owe any fed/state tax. BTW I live in California. If I
don't make this withdrawl for 1, I won't be able to afford
the mortgage and secondtly I'll continue to pay up to 10%
interest on the debt I've inherited. So if anyone has any
brilliant ideas I'm all ears.

Moderator:
Please explain the nature of the inherited debt.

<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ------------------------------------------------------- >