Question:   Even though I can't withdraw funds penalty free from my 401(k) plan to purchase my first home, can I roll it over my withdrawal into an IRA and then withdraw that money penalty free from the IRA to use as my down payment?

Answer:   You can roll funds from a 401(k) plan to an IRA to be able to take a penalty free distribution to purchase your first home if:

• You receivie a distribution from a 401(k) plan that is eligible to be rolled over into an IRA
• You meet all of the qualifications for an IRA distribution for a first-time homebuyer

The plan administrator for your 401(k) plan is required to notify you whether a distribution from the plan will be eligible to be rolled over into an IRA. Note that funds rolled from a 401(k) plan to an IRA are generally subject to federal income tax withholding at a 20% rate unless you do a direct rollover to the IRA.

To see if you qualify for a distribution to be used as a first-time homebuyer, refer to Chapter 1 of Publication 590, Individual Retirement Arrangements (IRAs).