re: 401K vs Buying Home

quote:

---

Correct. Can't use the exemption for a 401(k) distribution.

---

Incorrect. It is called a hardship withdrawal. The purchasing of a principal residence is allowed here:

The IRS code that governs 401k plans provides for hardship withdrawals only if:
Unreimbursed medical expenses for you, your spouse, or dependents.
Purchase of an employee's principal residence.
Payment of college tuition and related educational costs such as room and board for the next 12 months for you, your spouse, dependents, or children who are no longer dependents.
Payments necessary to prevent eviction of you from your home, or foreclosure on the mortgage of your principal residence.
For funeral expenses.
Certain expenses for the repair of damage to the employee's principal residence.*


ETA: There is a 10% penalty though, which may have been what you are referring to