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During tax season, we often see that people have used their 401k and IRA accounts for home down payments, or to help pay off debt. It’s important to understand the tax implications before making this game-changing move.........
How They Work
401k’s and Traditional IRA’s were created to provide a tax benefit for retirement savings.
Contribute to the accounts and your taxable income is reduced by the amount of your contributions. The account grows tax deferred; then income taxes are paid upon distribution.
If you withdraw from these accounts prior to age 59 ½, you’ll pay a penalty to the IRS and possibly to your state taxing authority for taking the withdrawal (there are some exceptions).
For Purposes Other Than Retirement
401k’s and IRA’s were meant to be retirement vehicles. But on occasion, people see a need to use the accounts for the down payment on a home purchase, or as a means to pay-off debt during tough times.
We encourage those folks to understand the tax implications before making this move...as the following effects can be devastating:
Rather than making a withdrawal, consider the following:
In the end, every situation is unique. Contact us if you’d like to review your specifics...we’re happy to help!