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My brother-in-law worked at shuffle master for 10 years and at 65 has accumulated a 401k that he would like to liquidate in order buy a home. Will he have to pay a penalty, will he be taxed at ordinary income rates or will this be considered a long term capital gain? And, does it matter what he does with the money?

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William Keats
He can liquidate the 401K at 65 without a penalty, if the trustee plan allows the withdrawl. If he is not retiring, he should leave the 401K alone, and take a mortgage. Mortgage rates are low right now. Some plans allow the employee to take a loan, repayable within 5 years, as long as he is working. Maximum loan normally $50,000. This could be used for downpayment.
If he does make a distribution, the amount would be taxable as ordinary income. Trustee would withhold 20% for Federal tax.
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