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401K withdraw to buy a house

Old 11-26-2016, 06:31 PM
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Default 401K withdraw to buy a house

The short of the deal is there is a house by me that's bank owned up for sale that im interested in. Im thinking of withdrawing $$ to buy the house and sell the one I have now to be mortgage free, what say the brain trust? Ill still have 300k in there and im only 42.
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Old 11-26-2016, 06:33 PM
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You only live once.
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Old 11-26-2016, 06:56 PM
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Originally Posted by angermanagement View Post
The short of the deal is there is a house by me that's bank owned up for sale that im interested in. Im thinking of withdrawing $$ to buy the house and sell the one I have now to be mortgage free, what say the brain trust? Ill still have 300k in there and im only 42.
Are there not penalties for an early withdrawal besides the taxes ?
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Old 11-26-2016, 07:21 PM
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You have to pay a 10% penalty plus income tax on the money. This will put you in A much higher tax bracket.

With mortgage rates under 4% and being able to write the interest off I could not think of a worse financial decision to make, but hey you will be debt free so why not!

Now if you use your 401k to take a loan and pay it back with the sale of your current house getting a mortgage for the difference that may not be a bad idea
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Old 11-26-2016, 08:40 PM
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On the other hnd - some 401k's allow loans on the money deposited by the owner - not company contributions. Cost of loan and it's repayment rates, verses a mortgage costs along with considering he rate of return if kept in the 401k.
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Old 11-26-2016, 08:51 PM
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I would definitely look into doing a loan instead of a withdrawal. With a loan there is no penalty and will not increase your tax bracket. If you take a 300k w/d from your 401k you will only have 140k after fees and taxes.
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Old 11-26-2016, 09:17 PM
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Originally Posted by bjm9818 View Post
You have to pay a 10% penalty plus income tax on the money. This will put you in A much higher tax bracket.

With mortgage rates under 4% and being able to write the interest off I could not think of a worse financial decision to make, but hey you will be debt free so why not!

Now if you use your 401k to take a loan and pay it back with the sale of your current house getting a mortgage for the difference that may not be a bad idea
Ding ding ding!
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Old 11-27-2016, 03:56 AM
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Not enough info really. A lot of plans allow withdrawal without penalty for primary residence purchase, not sure if your timing here will qualify you for that, I doubt it.

We did it for a home along the way but it's generally not a good idea, especially if the money is in equities and you'd miss run ups in the market (like now).

That all said, as BJM wrote mortgage rates are low and off set income tax...
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Old 11-27-2016, 03:56 AM
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My 401k plan we can take out a loan up to 50% of the saving at 4.99 interest rate for up to 20years. If you prove that the loan is for a down payment on a house no penalties. Not saying it's great to borrow from your 401k but it is a option for people.
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Old 11-27-2016, 04:01 AM
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Sounds like you have a lot of equity in your current home. If so, you could get a HELOC on your current home and use it for the down payment on new home and then pay it off when you sell current home. Tell the bank the HELOC is for renovations and don't list your current home for sale until after they grant the HELOC.
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Old 11-27-2016, 04:20 AM
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It depends on the definition of withdrawal. If you plan on paying it back, just take a loan against it. It also depends on how much you have in the fund, you are only allowed to borrow $50K per IRA or 401K account.

A few weeks ago we were prepared to take $100K out of 2-different 401K's to purchase house prior to closing on our current resident. We have enough equity that the loan would be paid back in full in about 60 days. No penalties and can take loan out for 20 years to minimize payments over a few months.

We tried to get a gap loan but no one is lending those anymore. If you havent tried the banks yet you can take a second mortgage out. The kicker is you need to do this prior to putting your house on the market.
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Old 11-27-2016, 04:23 AM
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Originally Posted by kone View Post
Not enough info really. A lot of plans allow withdrawal without penalty for primary residence purchase, not sure if your timing here will qualify you for that, I doubt it.

We did it for a home along the way but it's generally not a good idea, especially if the money is in equities and you'd miss run ups in the market (like now).

That all said, as BJM wrote mortgage rates are low and off set income tax...
There is a provision that allows you to withdraw up to $10k from an IRA penalty free but it has to be your first home purchase.
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Old 11-27-2016, 04:38 AM
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Depends on how bad you want the house. I don't live for tomorrow anymore. 1 brother past away 1 other in the hospital in need of a kidney. Nuff said..
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Old 11-27-2016, 05:28 AM
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I would second borrowing against the 401K as opposed to taking it out. The interest paid goes back to you.
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Old 11-27-2016, 05:50 AM
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Originally Posted by Trollin4Tuna View Post
There is a provision that allows you to withdraw up to $10k from an IRA penalty free but it has to be your first home purchase.
It depends on individual plan rules. For instance, we were allowed to loan up to 50% of vested balance and it had to be for primary residence, not just first home. We could also loan for anything but the payback term length was much shorter for that.
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Old 11-27-2016, 07:14 AM
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Do it and don't look back! I did this 2 years ago and ended up with a house of our dreams. Yes the penalties are steep, the next years tax bill is gonna hurt but it will all be worth it in the long run.

As other have mentioned - enjoy it while you can! Life is short and you only live once!
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Old 11-27-2016, 07:21 AM
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Keep in mind what your withdraw will be worth when you retire, I think the rule of thumb used to be your money doubles every seven years, now I think it's closer to every ten years. Chances are your house will not keep up with that return. Find another way to make it happen IMO.
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Old 11-27-2016, 08:08 AM
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You're doing okay to be 42 years old.

But I've said many times that I'd hate to be young and starting to save for retirement with the stock markets at an all time high and interest rates at an all time low.

Your friend is time, and you won't believe how fast 20 years comes around. Your enemy is inflation.

Best thing you can do is see if the financial institution stuck with the foreclosure is willing to finance the house on a direct, 2 year loan--until you can retail your other house. That'll get it off their books.

I bought a foreclosure earlier this year from a local credit union far below market value. Still don't know why a retired couple needs a 5200 square foot house with two double car garages.
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Old 11-27-2016, 08:24 AM
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You should have the option to borrow the money from your 401K and pay it back over a period of time with some amount of interest. It would depend on how the 401K is set-up. The tax implications of this are zero. Talk to your plan administrator.

This is not a recommendation just information from someone who administers a large 401K plan.
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Old 11-27-2016, 02:35 PM
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That's why I asked the brain trust . I forgot a withdraw counts as income. OUCH!!! We looked at the house today the potential is there but, man it needs work. Shame im not in the construction biz.


Unless my trust fund magically appears from long lost uncle were staying put.
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