Q. Will we have to pay the 10% penalty if we take some of the money out of our 401k to use as down payment for buying a house? We are first-time home buyers.

A. We don't advise taking money out of your 401(k), except in the case of dire emergency. This is your retirement fund and should be left to grow and provide you with safety and security in your later years.

Here's why:

If you withdraw the money -- even for a down payment on a first home -- you will have to pay a 10% penalty plus state and federal taxes on the money you withdraw.

You also will be locking in your losses. Almost all 401(k)s have lost money this year -- a lot of money. The investments you cash out now will never have a chance to recapture their previous value.

If your employer allows you to borrow money from your 401(k), you could do that and have five years to pay it back. You would not have to pay taxes on it and the interest rate would be reasonable. BUT, should you lose your job or change jobs before the loan is paid back, it must be paid in full before you leave. If you don't have the money, the loan is reclassified as a withdrawal and you must pay the penalties and taxes at a time you can least afford it.

We know how difficult it has become to get a mortgage without a substantial down payment and that many families have almost all of their savings tied up in retirement accounts. But a Roth IRA is the only kind that you can tap without losing a huge amount of your savings. Roth IRA contributions have already been taxed, so you can withdraw them without paying additional taxes or penalties.