IRA or 401k part of your down payment?

MCDO15 Posted: Aug 01, 2005 11:49 AM

IRA or 401k part of your down payment?

Hello...has anybody took part of your investment accounts and use part of you downpayment towards your first home?

we have a general question about taxes cause its still taxable income. how bad did it effect you when you went to file for the year vs. now being a home owner?

thanks

im almost in contract as long as these little things add up

Cranberry Posted: Aug 01, 2005 12:07 PM

Re: IRA or 401k part of your down payment?

september2004 Posted: Aug 01, 2005 12:45 PM

Re: IRA or 401k part of your down payment?

anything that is attached to your job i would make sure to read the fine print. in some cases if you and your company part ways (be it voluntary or involuntary) you are required to repay the entire amount on the spot

Blu-ize Posted: Aug 01, 2005 01:31 PM

Re: IRA or 401k part of your down payment?

Posted by september2004

anything that is attached to your job i would make sure to read the fine print. in some cases if you and your company part ways (be it voluntary or involuntary) you are required to repay the entire amount on the spot

Some plans have it that if you leave the job, or you are terminated you will have to pay it back within 30 days. Get a copy of your plan description to make sure. Most plans have this stipulation.

MCDO15 Posted: Aug 01, 2005 01:32 PM

Re: IRA or 401k part of your down payment?

well..to futher explain...
my wife was let go for the company and is fully vested in these funds... this is not the problem, my question is just with the tax implacations at fileing time

Blu-ize Posted: Aug 01, 2005 01:34 PM

Re: IRA or 401k part of your down payment?

Can you take a loan from the account? Or will you just be withdrawing funds?

MCDO15 Posted: Aug 01, 2005 01:45 PM

Re: IRA or 401k part of your down payment?

withdrawing

since this is pretax...its gonna be taxed when i file for 2005 year

ira - you dont have to repay

IrishBride-05 Posted: Aug 01, 2005 02:58 PM

Re: IRA or 401k part of your down payment?

You have to withhold 10% of what you withdraw. That should be plenty to cover your tax obligation come filing time.

Blu-ize Posted: Aug 01, 2005 03:28 PM

Re: IRA or 401k part of your down payment?

You will have to pay a 10% penalty plus income taxes for early withdrawal. Count on being taxed at about 45% on the money you withdraw.

dgtlsunshine Posted: Aug 01, 2005 03:41 PM

Re: IRA or 401k part of your down payment?

I think if you use it for a downpayment on a home you can take out 10k tax free.

DjPiLL Posted: Aug 01, 2005 05:36 PM

Re: IRA or 401k part of your down payment?

http://www.401khelpcenter.com/mpower/feature_121902.html

DjPiLL Posted: Aug 01, 2005 05:37 PM

Re: IRA or 401k part of your down payment?

Posted by dgtlsunshine

I think if you use it for a downpayment on a home you can take out 10k tax free.

This is not a correct statement.

What you are saying is called a 'Financial Hardship Withdrawal'. You don't pay the 10% early withdrawal fee on money you withdraw to put towards a house.

But you still must pay income taxes on it... and expect to be taxed somewhere around 40% for this.

And it does count as income so you will be pushed into a higher tax bracket and you may end up oweing money at tax time if your employer does not take out enough taxes.

Me personally... I would never withdraw money from a 401k loan for a house. I would consider a 401k loan... but not a withdrawal. The fees are just too great.

Blu-ize Posted: Aug 01, 2005 05:38 PM

Re: IRA or 401k part of your down payment?

I would like to add that some IRAs don't consider a down payment on a house a financial hardship. Just check with the stipulations of the IRA.

DjPiLL Posted: Aug 01, 2005 05:40 PM

Re: IRA or 401k part of your down payment?

Posted by Blu-ize

I would like to add that some IRAs don't consider a down payment on a house a financial hardship. Just check with the stipulations of the IRA.

Thats strange cause the link I posted quoted an IRS law (Section 72t). I would think this would apply to all 401k accounts.

The other is a penalty-free withdrawal made under Section 72(t) of the Internal Revenue Code. With this, you pay applicable income taxes but not an early withdrawal penalty.

Blu-ize Posted: Aug 01, 2005 05:57 PM

Re: IRA or 401k part of your down payment?

A retirement account is not necessarily a 401(k) account. Which is it? If the money in the plan has been converted to an individual account, then the rules change.

DjPiLL Posted: Aug 01, 2005 06:00 PM

Re: IRA or 401k part of your down payment?

Posted by Blu-ize

A retirement account is not necessarily a 401(k) account. Which is it? If the money in the plan has been converted to an individual account, then the rules change.

When looking for hardship withdrawal alternatives, don't forget savings in your IRA, if you have one. IRS rules allow IRA holders to withdraw up to $10,000 penalty-free when the money is used for qualified first home expenses. (That is a lifetime limit.) Also, you may take penalty-free IRA withdrawals when the savings are used to pay for qualified higher education expenses for you or your spouse, children or grandchildren.

This is what dglt was trying to say. You can take out money penalty-free for a first home purchase. But you still pay income taxes.

Well... regardless... IMO its still not a good decision no matter if you get the money penalty-free or not. Point being... you definitely aren't getting it TAX free so its not worth it.

dgtlsunshine Posted: Aug 01, 2005 06:04 PM

Re: IRA or 401k part of your down payment?

Oh man it figures that the govt would get their stake no matter what.

MCDO15 Posted: Aug 01, 2005 09:49 PM

Re: IRA or 401k part of your down payment?

Posted by Blu-ize

A retirement account is not necessarily a 401(k) account. Which is it? If the money in the plan has been converted to an individual account, then the rules change.

its a retirement account that has is gonna be a direct rollover IRA... there is no plenty in this. i believe a couple of you have answered the question

its' gonna be a heavy hit on income tax when it coems time to file.

thank you all for your coments

sophie78 Posted: Aug 02, 2005 08:33 AM

Re: IRA or 401k part of your down payment?

Just a word of caution (and I could be wrong): Some employers won't allow you to do this even if it is for a house. The only reason why I know this is that my husband took over for another lawyer who quit after his firm wouldn't let her withdraw money for a house.

DjPiLL Posted: Aug 02, 2005 10:27 AM

Re: IRA or 401k part of your down payment?

Posted by dgtlsunshine

Oh man it figures that the govt would get their stake no matter what.

LOL of course. If you were able to put tax-free money into an IRA... and then take that tax-free money and move it to a house... everyone would be doing it!