Do 401(k) Loans have early withdrawal penalties?

When you take out a 401 (k) loan, you do not incur the early withdrawal penalty, nor do you have to pay income tax on the amount you withdraw. You have to repay the loan with interest, essentially paying yourself back. The interest rate and the other repayment terms are usually designated by your 401 (k) plan provider or administrator.

Should I take money out of my 401(k) to buy a house?

Taking money out of your 401 (k) to buy a house robs you of compound growth and is never a good idea. There are two ways to buy a house using money from a 401 (k): early withdrawal or a loan. Early 401 (k) withdrawals come with penalty fees and taxes if you’re younger than age 59 1/2. You’ll lose about 30% of your money before you even spend it!

What happens if you take a 401(k) early?

IRS Penalty. If you took an early withdrawal of $10,000 from your 401 (k) account, the IRS could assess a 10% penalty on the withdrawal if it’s not covered by any of the exceptions outlined below. Withdrawals are taxed. Even if it were covered by an exception, all early withdrawals from your 401 (k) are taxed as ordinary income.