Can I use my 401k balance to purchase a new home?

This answer was provided by James Castro, CPA, Castro Thresher & Oliveira PC, Attleboro

Q: I am a first time homebuyer. Can I use any of my 401(k) balance toward the purchase of a new home/condo without being penalized? - Tim, North Andover

A: You may withdraw up to $10,000 from an IRA without paying the penalty (although still paying the tax). There is no such exemption for a 401K. You may wish to consider a loan from your 401K if allowed thus obtaining the funds tax free, and borrowing from your retirement vs. permanently reducing it.