Legal Question in Real Estate Law in Massachusetts
401(k) Loan Restriction
My 401k will only allow a loan for the purchase of a primary residence. If my spouse quit claims his property rights to me (we own the property jointly), does that meet the definition of the purchase of a primary residence. Asking from an IRS and a contracts perspective what the likely behavior of the plan administrator will be. Thank you
1 Answer from Attorneys
Re: 401(k) Loan Restriction
If you are actually buying his portion of the home from him as part of a separation agreement, antenuptual agreement or divorce it would probably qualify, you should check with the plan administrator. If however this being done as legal contrivence to meet the requirements it may be treated by the IRS as improper dsitribution and have some very dramatic and negative impact on your 401K.
Most 401K's allow for purchase of a residence (up to 5 years) and many permit it for use to pay medical insurance or medical bills under certain criteria. I would double check what emergency circumstances allow for loans or distribution. Without reviewing your plan it is impossible to say, as it may define what a purchase of a residence means.
If you are truly buying your spouse's interest, you need to show a valid P&S or similar agreement. The property sale should be at or around market value less say 5% brokerage fee.
Good Luck.
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