Tell your client to borrow the money from the 401k plan there is no penalty for that and also he may not be suspended from the plan for that money also the money he repays will be his money all interested is paid to him or her
r r eight, there is no first time homebuyer exception for distributions from a 401k. That break only applies to IRAs. If your client had bought a condo and a month later taken an IRA distribution to buy a car, he could likely get a waiver of the penalty. The condo purchase and the distribution happened in close proximity in time. The IRS doesn't know or care which dollars went to which purpose. If he waited more than a couple of months after buying the condo to take the distribution he wouldn't fall within the rules for penatly abatement. The point is moot, however, because the money is coming from a 401k not an IRA. He can't get out of the early distribution penalty unless he qualifies for some other exception.