SEP-IRA: Income?

[Aimster]

Posted on another forum but didn't get any answers

Employer puts 15% of my gross monthly income every month into a SEP-IRA. I take it he(owner) does this to avoid taxes.

I went to apply for a mortgage and they are not letting me use those monthly deposits as income.

Does this make any sense? How is it not income when I can withdrawal it whenever I like?

 

[DaveSimmons]

> How is it not income when I can withdrawal it whenever I like?

No you can't. For SEP-IRA the withdrawal rules are the same as Traditional IRA not a Roth.
http://www.investopedia.com/un...ans/sepira/sepira3.asp

You apparently can clean out your retirement savings to buy a home, but that doesn't count towards your income only towards your down payment.

If you stopped contributing towards the IRA your monthly income would be higher, but closer to 10% than 15% since you'd then be taxed on the income. This is a bad idea, especially if you get any kind of matching money.

 

[Aimster]

I could still withdrawal from it. Even with a 10% penalty, $10,000/year = $9,000/year additional gross income.
Bank refuses to accept this

 

[DaveSimmons]

They are looking at your take-home pay, right?

That's what you are taking home now, not what you could take home if you change your W-4 exemptions or retirement savings.

If you want the bank to count it as income (not savings, assets, etc.) just tell your boss to drop you from the SEP-IRA for now until after you get the loan. Voila, next pay period your take home pay is up 10%.

Edit: but if you are that close to the edge for being approved, can you really afford the loan, maintenance, property taxes, homeowner association fees, ... ?

Edit 2: I have no idea how long it takes before the bank will accept your new, improved income from ending your IRA contributions, it might take more than one paycheck.

 

[Elbryn]

Or do the stupid thing and withdraw the money, eat the taxes, and increase your down payment to the point where your monthly mortgage payment no longer exceeds the gross % that the bank is using for their decision.