Taxes Q & A- If I can't withdraw funds penalty

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

Yes, if you are receiving a distribution from a 401(k) that is eligible to roll over into a IRA and you meet all of the qualifications for an IRA distribution for a first-time homebuyer. Your plan administrator is required to notify you before making a distribution from your 401(k) plan whether that distribution is eligible to be rolled over into an 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).

References:

Publication 560, Retirement Plans for Small Business (SEP, Simple, and Qualified Plans)

Publication 575, Pension and Annuity Income

Publication 590, Individual Retirement Arrangements (IRAs)

Tax Topic 424, 401(k) plans

Tax Topic 558, Tax on early distributions from retirement plans

Tax Topic 412, Lump-sum distributions

Source: www.irs.gov