Using 401k to purchase home. | TigerDroppings.com

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LifeTimeTiger
LSU Fan
Baton Rouge
Member since Dec 2003
631 posts

Using 401k to purchase home.


Used funds from IRA I setup from former employers 401k plan to buy a house. Is irs still going to hit me with the 10% penalty come tax time? I didn't have them withhold anything.


This post was edited on 1/18 at 11:10 pm



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OldTigahFot
LSU Fan
Drinkin' with the rocket scientists
Member since Jan 2012
5498 posts

re: Using 401k to purchase home.


I think you get penalized for w/d under age 59-1/2 regardless of what you do with the money.







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Siderophore
LSU Fan
Member since Nov 2010
3334 posts

re: Using 401k to purchase home.


Why are you asking this now rather than before you did it?

Did you seriously raid your nest egg without carefully considering all the options?

You are given a one time, 10k excemption on the penalty if you are a first time homeowner.

You need to make the move on the payment within 120days however unless I am mistaken.

Another alternative is that many 401ks allow you to pull out a loan on yourself. Yes, you'll have mini payments, but you are paying the interest to yourself. So the main cost is that of opportunity of the growth that could have been.



This post was edited on 1/19 at 12:27 am


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Siderophore
LSU Fan
Member since Nov 2010
3334 posts

re: Using 401k to purchase home.


quote:

I think you get penalized for w/d under age 59-1/2 regardless of what you do with the money.



Widely incorrect.

There are a list of penalty free withdrawals.

Others include college expenses for yourself or a direct relation (spouse/kids), including living.

Unreimbursed medical expenses

Health insurance premiums while unemployed

Disability

And you can get special approval to remove regular dollar amounts penalty free.






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peopleschamp
Wright St. Fan
Baton Rouge
Member since Feb 2006
6576 posts

re: Using 401k to purchase home.


Thanks for this info Side. I did not know this.





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TejasHorn
Texas Fan
High Plains Driftin'
Member since Mar 2007
3395 posts

re: Using 401k to purchase home.


I took a loan off my 401k to pay grad school debt. One if the best decisions I've made. The (much lower) Interest was paid back to me instead of the bank.

As someone said you can use it for a home down payment but set it up as a loan and not outright withdrawal. There is no explicit penalty on a loan. Just the cost of missed growth if the markets are doing well.



This post was edited on 1/21 at 6:12 am


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DrEdgeLSU
LSU Fan
Dallas, TX
Member since Dec 2006
5949 posts

re: Using 401k to purchase home.


Someone correct me if I am wrong, but I am fairly certain you'd still have to pay tax on that withdrawal. You have only exempted yourself from the penalty. Correct?





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igoringa
LSU Fan
Tejas
Member since Jun 2007
9533 posts

re: Using 401k to purchase home.


quote:

Someone correct me if I am wrong, but I am fairly certain you'd still have to pay tax on that withdrawal. You have only exempted yourself from the penalty. Correct?


No. If you get a 401(k) loan, the amount borrowed is not taxed.

However the payments back are after tax.






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wiltznucs
South Florida Fan
Apollo Beach, FL
Member since Sep 2005
7601 posts

re: Using 401k to purchase home.


quote:

I took a loan off my 401k to pay grad school debt. One if the best decisions I've made. The (much lower) Interest was paid back to me instead of the bank.


I'm debating this right now, my GradPlus loans are at 7.9% and I could take a loan from my 403B at about 4% interest and pay the money back to myself. My concern is whether or not its wise if the money could be generating a greater than 8% return in the 403B. I got a 19% return in 2012. I also need to consider the tax benefits of the student loan interest write-off but I understand if your Adjusted Gross Income is too high you are granted no deduction. Need to verify this with my tax guy.



This post was edited on 1/21 at 4:30 pm


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Siderophore
LSU Fan
Member since Nov 2010
3334 posts

re: Using 401k to purchase home.


Does anyone know if the loan and payments show up on your credit report?





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DrEdgeLSU
LSU Fan
Dallas, TX
Member since Dec 2006
5949 posts

re: Using 401k to purchase home.


I meant if the withdrawal was NOT taken as a loan but used for a qualifying event.





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wiltznucs
South Florida Fan
Apollo Beach, FL
Member since Sep 2005
7601 posts

re: Using 401k to purchase home.


quote:


Does anyone know if the loan and payments show up on your credit report?



Yes, the 401K loan does appear on credit reports...






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JonTheTigerFan
LSU Fan
Central, LA
Member since Nov 2003
4668 posts

re: Using 401k to purchase home.


quote: Does anyone know if the loan and payments show up on your credit report?

Yes, the 401K loan does appear on credit reports... [/quote]

Not with my 401k plan. They also wouldn't count it in my DTI if I were to use it as a down payment on a mortgage because the money in my 401k is collateral for the 401k loan and is impossible to default on.






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wiltznucs
South Florida Fan
Apollo Beach, FL
Member since Sep 2005
7601 posts

re: Using 401k to purchase home.


My wife tapped into her 401K when we purchased our home in 2007. It appeared on Equifax, Transunion and Experian. Perhaps different 401 providers may choose to report or not report?





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JonTheTigerFan
LSU Fan
Central, LA
Member since Nov 2003
4668 posts

re: Using 401k to purchase home.


Could be. I have a loan I took out to buy my wife's car and it doesn't show up. I just had my credit pulled last week for a mortgage and there is nothing about it on there. I asked the loan officer if that loan would affect my DTI and she said it wouldn't. My plan is different than one I had in the past in that the money for the loan isn't withdrawn from your account, it's only used as collateral. In my case, the losses or gains on my 401k are the same as they would be if I didn't have the loan.





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Siderophore
LSU Fan
Member since Nov 2010
3334 posts

re: Using 401k to purchase home.


Where is the profit for them?

You get a low interest rate from the secured nature but you pay it to them as opposed to yourself?

This is the first I hear of the money staying there and being used as collateral in these types of loans.






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JonTheTigerFan
LSU Fan
Central, LA
Member since Nov 2003
4668 posts

re: Using 401k to purchase home.


I work for a huge company with great benefits. If I had to guess, I would say they pay the company who handles our 401k good money to do so. This is from my plan website:


When you borrow money from the Savings Plan, the assets in your Savings Plan Account serve as collateral for the loan. When you have an outstanding loan, withdrawals/distributions that will reduce the collateral value below the amount of your outstanding loan balance will be restricted.

ETA: The loan is paid back to myself and the interest I pay goes into the "common assets" portion of my 401k.



This post was edited on 1/21 at 5:33 pm


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Siderophore
LSU Fan
Member since Nov 2010
3334 posts

re: Using 401k to purchase home.


(no message)


This post was edited on 1/21 at 5:55 pm


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