It is rather possible that your old 401(k) account is inactive and accumulates unnecessary charges. The transfer of the account to another one is crucial, particularly if you are going to purchase your first house. You return control over your investment and charges. That is, you have to save money rather than spend it on fees.
You may use three main ways of dealing with such a situation. Firstly, you may transfer your funds into a new 401(k) plan provided by your employer. Secondly, you may move your savings to a Traditional IRA. Thirdly, you may simply withdraw the money, which usually results in the tax and the 10% penalty imposed by the Internal Revenue Service (IRS).
If we are speaking about the first time homebuyer, the IRA approach is the most suitable since you may withdraw $10,000 without penalties on the purpose of buying a house. Such sum might be used as a down payment. Still, it should be noted that the withdrawal of money from the Traditional IRA is treated as taxable income.
Direct rollover is a good way of avoiding taxes. Namely, you should ask the old provider to transfer the money directly to your new account. Otherwise, the old company will send you a check and withhold 20% for taxes. You should fill up the hole from your saving account to avoid penalties.
Contact the administrator of your 401(k) account and ask for the form of a direct rollover. It is an easy task, either filling a form or making a phone call. You should specify the destination of the money. Do not let your administrator send you a check if you do not like to deal with extra math calculations.
Do not withdraw the funds from your new account until the closing day. Lenders get suspicious seeing strange deposits in your account at the moment of applying for the mortgage. Thus, you should provide them with documents proving the withdrawal of money from the retirement account.
This process might seem to be similar to untangling Christmas lights. Nevertheless, in the end, your financial paperwork will be clear. And you will be able to buy your dream house.