NWR: Any financial people?

We are considering borrowing from our 401Ks to fund our closing costs on a coop- we have enough for the downpayment- but not the closing- what are the drawbacks? tia

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Posted by rkl1130

You will be taxed on the money you take out from your 401K

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No you won't. FH borrowed from his 401k to remodel our bathroom. His 401k is with Fidelity. He pays back this loan over 5 years. They automatically deduct his 'repayment amount' from his GROSS paycheck and deposit it directly into his 401k. He did not pay taxes to withdraw it. So long as you take it as a 'loan' and not a 'withdrawal' there will be no tax. FM me if you need more info.

Definatley do it.

If you leave the company they may have you pay the money back right away and if you dont then they will tax you on it.

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Posted by rkl1130

You will be taxed on the money you take out from your 401K

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You are not taxed., you borrow your own money as a loan.

The only way you can be taxed is if you leave the company and you do not repay the loan back according to their plan., then you can be taxed.

If you are only borrowing from your 401k, you will be fine. You will just have to pay the amount back with interest.

If you do an early withdrawal, where you don't have to pay it back, you will be heavily taxed. But also, if it is your first home you are purchasing, you can make a withdrawal and not be penalized so heavily. (there are lots of rules with this)

If its a loan, no problem, if you want to withdraw, I would consult a CPA.

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Posted by MrsHtobe

If you are only borrowing from your 401k, you will be fine. You will just have to pay the amount back with interest.

If you do an early withdrawal, where you don't have to pay it back, you will be heavily taxed. But also, if it is your first home you are purchasing, you can make a withdrawal and not be penalized so heavily. (there are lots of rules with this)

If its a loan, no problem, if you want to withdraw, I would consult a CPA.

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Also - note that the interest you are paying back is being paid back to yourself. So all the money you are paying back, interest included, is just going straight back into your 401k.

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Posted by Jess125483

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Posted by rkl1130

You will be taxed on the money you take out from your 401K

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No you won't. FH borrowed from his 401k to remodel our bathroom. His 401k is with Fidelity. He pays back this loan over 5 years. They automatically deduct his 'repayment amount' from his GROSS paycheck and deposit it directly into his 401k. He did not pay taxes to withdraw it. So long as you take it as a 'loan' and not a 'withdrawal' there will be no tax. FM me if you need more info.

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Okay. I wasn't sure if she said loan or just take out money.

I know I have a friend (who is in finance) who didn't know better and instead of taking out a loan like I mentioned to her, she just withdrew money and was taxed.

Plenty of people do take a loan out on their 401K to use to buy a house, so it's not uncommon.

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Posted by Jess125483

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Posted by MrsHtobe

If you are only borrowing from your 401k, you will be fine. You will just have to pay the amount back with interest.

If you do an early withdrawal, where you don't have to pay it back, you will be heavily taxed. But also, if it is your first home you are purchasing, you can make a withdrawal and not be penalized so heavily. (there are lots of rules with this)

If its a loan, no problem, if you want to withdraw, I would consult a CPA.

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Also - note that the interest you are paying back is being paid back to yourself. So all the money you are paying back, interest included, is just going straight back into your 401k.

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Yes, its all going right back into your account. I was just explaining that she would have to pay back a little more than she took out This conversation is reminding me of my auditor days