In most cases a 401k hardship withdrawal can be done, but there are fees, expenses, and possibly tax penalties that can apply if you are below a certain age. Some financial experts may advise that cashing out 401k plans for a first time home purchase can be a smart move, if there is enough of a balance to pay a large portion of the home off. Before you make any decisions that could have serious financial consequences you should always seek 401k investment advice from an expert, to make sure that you are doing the right thing concerning your finances and future retirement.

Most of the time it may be a better option to start another savings vehicle instead of cashing out 401k plans, because there are no penalties involved or additional expenses incurred. The average 401k balance by age shows that many individuals in their 40s or 50s may have a sufficient account balance to cover most if not all of the price of a modest home, with a cost of roughly one hundred thousand dollars. Most safe harbor 401k plans and other types of 401k retirement accounts do allow a withdrawal for the purchase of a first home, but for many the 401k account balance may only cover a down payment.

Many financial professionals caution against making a 401k withdrawal for any reason at all though, because these funds will be needed later on.

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