My only concern about pulling 401k money to buy a house or pay debt etc is from personal experience years ago when hubby lost a job and we pulled some 401k money and I learned a lesson months later. Money taken out of a retirement account not only gets the penalties, but also becomes taxable. You said hubby makes 60,000 a year—if you pull 50,000 out of 401k—they will charge you the penalties as you pull it—but then when you file your taxes—-it as if you made 110,000 this year. This could bump you into a higher tax bracket. It could also affect what you can itemize and claim, etc…..
Robbing your 401K – which a bankruptcy doesn’t take on purpose because its important to have a retirement plan – is not the choice you want to make. Not to mention the 40% penalty you’ll acrue. If you have 100,000 in your 401K – you’ll walk away with 60,000. You’ll never conceivably make up that 40,000 loss.
I’m sorry I haven’t thought of a solution for you – I read your e-mail early this morning and I don’t usually like to write an answer without a workable solution but I thought it important that I stress how bad your plan is. I read your plight on renting and the need for accessible housing, but I don’t have a good answer for you.