Using a 401(k) to Buy a House: Loan vs. Withdrawal

Yes, but how you access the money matters: a 401(k) loan generally avoids the early-withdrawal penalty if your plan permits loans and you repay it under the plan’s rules. Taking money out as a distribution to buy a home is different—the purchase itself does not exempt a 401(k) withdrawal from the 10% early-withdrawal penalty if you are under 59½.

A 401(k) loan can provide money for a down payment without an immediate tax bill, but you must make payments even while managing a new mortgage; if you leave your job or fail to repay, an unpaid balance may become taxable and subject to a penalty. Some plans allow a hardship withdrawal for costs directly related to buying your primary residence, but that withdrawal is generally taxable and may still carry the 10% penalty if no separate exception applies.