Son has $18000 401k. He no longer works there. He wants to buy a house. Instead of doing a roll over and pulling $10,000 out penalty free/not tax free, would he be better off paying tax as long term capital gains? He has a job that pays about $55,000 a year. His 401k has had 81.5% growth in the last two years. Started at 0 in mid 2010...quit the job in 2012...401 k grew to $18,500 total. Is it possible to take about $10000 out and pay taxes as long term capital gains? Would this be a better choice than the rollover and withdrawal as first time home buyer?
Funds withdrawn from a 401(k) are treated as ordinary income, just as if he'd earned it in salary. Unfortunately, there's no way to obtain long term capital gains tax treatment in your son's situation.