Saving for a house

[Turin39789]

Fairly simple question I suppse. I'm not currently maxing out my 401k. I have a seperate savings account setup that I'm putting money in towards buying a house in a few years.

I believe, but don't know the rules invovled, that you can do a one time 401k cashout for a home purchase.

Would it make more sense for me to save for my down payment inside my 401k, or keep it in a money market account at my bank?

 

[Specop 007]

I would keep my money in the 401k and save outside for a down payment.

The program I'm aware of is simply taking a loan against your 401k. You determine the amount of the loan and how many months you'll pay it back and a check is cut. The money comes from your 401k and is paid to you, but its considered a loan. Nice thing there is your paying interest to yourself. Downside is that amount of money isnt in your 401k growing.

 

[amdskip]

I'm not formally educated on this subject but I would guess that you would want something other than your 401k. I personally used ING and it worked great for me.

 

[Dufman]

If you use a 401k towards the purchase of your FIRST primary home, then you avoid the 10% federal tax penalty for withdrawing money before you turn 59.5, but you still have to pay income taxes on the money becasue the money in there has never been taxed, if it is a LOT of money you can raise your tax bracket and get screwed at tax time.

If it is a Roth 401k, different rules apply to taxation.

My advice would be to open an online saving account, something that pays 4.5%+ and let your money grow. Do NOT under any circumstance stop tossing money in your 401k, that is retirement murder.

 

[DaveSimmons]

ING Direct or other high-interest savings.

It's a good test of your ability to pay a mortgage to see if you can save up the down payment while still putting money into your 401k for retirement. If you can't, you might not be ready for a mortgage yet.

 

[BigJelly]

Originally posted by: Dufman
If you use a 401k towards the purchase of your FIRST primary home, then you avoid the 10% federal tax penalty for withdrawing money before you turn 59.5, but you still have to pay income taxes on the money becasue the money in there has never been taxed, if it is a LOT of money you can raise your tax bracket and get screwed at tax time.

If it is a Roth 401k, different rules apply to taxation.

My advice would be to open an online saving account, something that pays 4.5%+ and let your money grow. Do NOT under any circumstance stop tossing money in your 401k, that is retirement murder.

QFT

I went a slightly different route:

I put my extra money in mutual funds. Even after recent market selloffs I'm still up 6.89% (~13.8% annual return).

 

[Dufman]

Originally posted by: BigJelly

Originally posted by: Dufman
If you use a 401k towards the purchase of your FIRST primary home, then you avoid the 10% federal tax penalty for withdrawing money before you turn 59.5, but you still have to pay income taxes on the money becasue the money in there has never been taxed, if it is a LOT of money you can raise your tax bracket and get screwed at tax time.

If it is a Roth 401k, different rules apply to taxation.

My advice would be to open an online saving account, something that pays 4.5%+ and let your money grow. Do NOT under any circumstance stop tossing money in your 401k, that is retirement murder.

QFT

I went a slightly different route:

I put my extra money in mutual funds. Even after recent market selloffs I'm still up 6.89% (~13.8% annual return).

Wise man say:
Very risky to put short term (money needed in less than 5 years) dollars in the stock market.