If you have to get your hands on IRA or 401K money before age 59 ½, then usually you have to pay a 10% penalty. You might be able to avoid this penalty if your withdrawal is to pay for large medical bills, college expenses, the birth or adoption of a child, a first-time home purchase (withdrawal limited to $10K), or is related to a disability. Furthermore, some of these exceptions only apply to IRA withdrawals. For example, if you are purchasing your first home, a $10K withdrawal from your 401K to fund it will be subject to a 10% penalty, but a $10K withdrawal from an IRA won’t be. Solution: Roll $10K of funds from your 401K to your IRA, and then withdraw the funds from the IRA to help with your house down payment.