Deciding what to do on taxes

[Daisyedwards800]

In 2020, I took a voluntary buyout which allowed me to collect UE.  I also withdrew some from my 401k (b/c of the lack of 10% penalty).  Here is my situation:

$9,500 cash
$28,000 Roth IRA
$474,000 401k/IRA

I want to start looking to buy a house in the next 6 months.  I can pile up cash and family will contribute $25k towards the down payment/closing costs. 

My tax planning options are:
1) Put $7,600 back into my 401k.  This will allow me to have no taxes on my 401k withdrawal at all.
In this case, I receive a $4,400 refund which I would basically use to pay part of the $7,600 back into the 401k. I'd also need to contribute $3,200 more over the next month or so back in leaving me with less post-tax cash for home purchase.

2) Do not put the $7,600 back in and get a $2,200 refund.  In this case, I'd net $5,400 towards my home purchase (the $3,200 I wouldn't have to put back in plus the $2,200 refund).

It has been a bit difficult to save cash because I had student loans and I wanted to lower my taxable income living in NYC.  I make $160,000 base, between $10k-20k bonus gross and an employer contribution to my 401k of $8,000 per year from 2022 on (this year just 2021 because of the proration).

Do either of these sound like better options for my goals?  I am 38/F and want to retire in my 40s to a lower cost of living place.

[maizefolk]

If you're looking at FIRE in your early 40s in a non-NYC place, have you double checked the math on buying vs renting between now and when you leave for LCOL pastures pencils out in your favor?

Assuming it does, how much do you actually need to save up in order to cover your purchasing costs/down payment? And how much are you able to save in cash each month above and beyond your retirement contributions? Putting money back into your 401k gives you at 29% return in terms of tax savings which is a pretty good deal if you expect your income and marginal tax rate to be lower in retirement, which seems a near certainty (especially since you'd no longer be paying city income tax on top of your state and federal taxes).

So if the numbers on buying a house that you'll sell when you FIRE work out and if you would be able to save the amount money you need through other means, I'd put the money back in your 401k.

[Daisyedwards800]

Thanks for the ideas on what to think about.  I would save $5,400 less (cash) by putting the $7,600 back into my 401k so that is what is giving me pause.  I am not going to buy in the NYC zip codes but farther out where I can get something for 400k-500k.  I'm just so tired of apartment living and renting for so long.  I am willing to give up a bit higher return to live in a space I like a lot.  So this is just short-term cash.  I suppose $5,400 isn't a huge amount but it is going to make a difference in terms of down payment isn't it?

[wageslave23]

How about renting a single family home? I don't know how I'd feel about taking $25k from family, especially when I have $400k+ in savings.  How much do you save per month?  We need to know that before giving an opinion on the 401k withdrawal.

[Daisyedwards800]

How about renting a single family home? I don't know how I'd feel about taking $25k from family, especially when I have $400k+ in savings.  How much do you save per month?  We need to know that before giving an opinion on the 401k withdrawal.

Most of my savings is pre-tax so I probably will need the $25k.  "Taking" from family?  I paid my way since I was 18 - not sure a moral judgment is appropriate here.

[maizefolk]

Wageslave23 brings up an important point: you are you are tired of renting and apartment living. Is it more that you are tired of renting? Or more that you are tired of living in apartments? I realize the question could feel frustratingly off-topic, but many posts on the forum end up being a version of the XY problem, where the best advice results from first asking "why do you want to do the thing you are asking for advice on how to do?"

If you don't feel comfortable sharing your target amount for downpayment and closing costs and how much you normally save in cash each month (after taxes, retirement contributions, and spending), even pseudonymously that is completely okay, although it really limits how much we can help you with this decision.

But do you, yourself, have a good sense of what the values are for each of those two numbers?