Filing taxes now. Any advantage to reduce taxes from using withdraw from 401k to purchase first time home buying?

Hi Terry, Actually yes . If you've never taken a withdrawal to purchase a home then you do not pay taxes on that withdrawal. I am not a tax preparer or tax accountant so be sure to check with them first before making a withdrawal for that purpose.

Consult a tax professional..

If you withdraw funds from your 401K to purchase a home, you will be penalized 10%, PLUS you will owe taxes on the amount withdrawn.. you can however BORROW against your 401K, up to 50% of the value.. some lenders require that the payment you make back to yourself will need to be added as a debt to your ratios, but it is allowed.. The advantage to borrowing vs. withdrawal is simple.. you pay yourself back with interest, and it's all yours, with no penalties or additional taxes.. I'm a Broker here in Scottsdale AZ and I only lend in Arizona. If you or someone you know is looking for financing options, feel free to contact me or pass along my information. William J. Acres, Lender411's number ONE lender in Arizona. 480-287-5714 WilliamAcres.com

I don't see how using your 401k to help you purchase a home will reduce your taxes. Purchasing a home can help reduce your state and federal income taxes because mortgage interest and property taxes are deductible expenses on schedule A and may open up the opportunity to claim other deductions as well. However, my understanding is that a withdrawal of money from your 401k IS taxable because you did not pay taxes on the funds when you placed them in the 401k and there may be a penalty for withdrawal prior to retirement age -ASK A TAX PROFESSIONAL! If you can afford to take the money as a loan an pay yourself back (as Joe suggested above) that is a better option in my opinion. I've had customers who didn't understand, did a 401k WITHDRAWAL and ended up owing the IRS a LOT of additional taxes they were not planning on.

Sorry, it was William who made the suggestion for a loan that I agree with.