Using 401k money for downpayment?
Anyone do this?
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Using 401k money for downpayment?
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Re: Using 401k money for downpayment?
We did. We took out $10K out of my 401K. We still had to pay the taxes on it but the 10% penalty was waived for 1st time homebuyers.
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Re: Using 401k money for downpayment?
I borrowed money from my 401K. There were no penalties or taxes, but I will be repaying myself with interest.
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Re: Using 401k money for downpayment?
You can take up to $10,000 out of an IRA or 401k for a first time home purchase and the under age 59.5 penalty is waived, but you still have to pay taxes.
Many 401ks have loan provisions that allow you to withdraw varying amounts and pay it back over time. Look into all of the provisions carefully b/c if you leave the company, some force you to repay quickly and if you can't afford to repay it, they take it out of your remaining 401k balance and you will then be charged the 10% penaly and you will be taxed on it as ordinary income.
Many 401ks have loan provisions that allow you to withdraw varying amounts and pay it back over time. Look into all of the provisions carefully b/c if you leave the company, some force you to repay quickly and if you can't afford to repay it, they take it out of your remaining 401k balance and you will then be charged the 10% penaly and you will be taxed on it as ordinary income.
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Re: Using 401k money for downpayment?
I looked into it...but decided against it. While I was able to borrow from my 401K....my plan would allow payroll deductions to repay myself. However...I was not able to contribute to the plan for 1 year if I took the money out....so I did not want to do that.
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Re: Using 401k money for downpayment?
Is there really a 10k limit?
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Re: Using 401k money for downpayment?
There is a 10k limit on penalty free withdrawals for first house purchase when you are under 59.5. You can take more out of your 401k through a loan if your plan allows it, but like I mentioned before there may be a lot of restrictions and conditions on a loan that you want to look closely at.
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Re: Using 401k money for downpayment?
Posted by Crisco718
I borrowed money from my 401K. There were no penalties or taxes, but I will be repaying myself with interest.
Depending on your plan there are 2 types of loans. You can usually take up to 50% of your vested balance. For a general purpose loan, you repay yourself over 5 years.
For a home loan, you can repay over 15 years.
Becareful with withdrawls, not every plan offers no penalities.
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Re: Using 401k money for downpayment?
We borrowed money from FHs' 401K. There were no penalties or taxes, at least not yet, but we will be repaying back with interest automatically from his weekly paycheck.... And we may have to dip back into it for the wedding... ![]()
Anyone have the winning lotto numbers?
Anyone have the winning lotto numbers?
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Re: Using 401k money for downpayment?
Be careful with 401(k) loans. You are not assessed any penalties if you pay it back, but you are paying the loan back post-tax and when you eventually withdraw the funds, you will be taxed again.
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Re: Using 401k money for downpayment?
I just read an article on msn.com last night that said borrowing from a 401k is one of the worst financial mistakes .. it also said using home equity to pay off credit card debt was a big no-no .. unfortunately, I can't find the article, and I don't recall the specific details.
Okay .. I found the article .. hope it's helpful:
3 Worst Money Moves...
Okay .. I found the article .. hope it's helpful:
3 Worst Money Moves...
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Re: Using 401k money for downpayment?
Posted by Kel
I just read an article on msn.com last night that said borrowing from a 401k is one of the worst financial mistakes .. it also said using home equity to pay off credit card debt was a big no-no .. unfortunately, I can't find the article, and I don't recall the specific details.
Okay .. I found the article .. hope it's helpful:
3 Worst Money Moves...
I would have to disagree with some of this article. I have a masters in personal fiancial planning and borrowing from your 401K to pay off credit card debt or buy a new car is definately a bad idea, especially if you are going to accumulate more high interest debt.
It is a different scenario for home buying. In addition, not all 401k plans make you pay back the money immediately if you change jobs. In many plans if you allow them to do automatic withdrawals from your bank account, you can continue to pay back the funds to your 401 k after leaving a job.
If you do not have much invested in your 401K and are behind on your retirement goals, it is not a good idea to touch the money.
Another pitfall is if you stop investing as much into your 401K because your repaying the loan.
There is no cut and dry answer to whether it is a good idea or not it really depends on each persons financial situation.
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Re: Using 401k money for downpayment?
My firm handles about 900 pension plans, and you are not able to continue making loan repayments if you leave the firm. This may be different for other companies, but this is our procedure and it's written in the plan documents this way. You either have to pay the loan back in full in a lump sum upon termination or the loan will defaulted, and a 1099-R issued to reflect the outstanding loan balance.
