My friend tells me you can withdraw money from your 401k, without inflicting the fine, provided you use the money towards buying your first house. Is there any truth behind that?
Something I heard from a friend. Is this true?
- Thread starter Argo
- Start date
I can borrow half of what I have vested, and pay it back (to myself) at a loan length of my choosing, for 5% interest (which is paid to myself). 401K is great.
It depends on your 401k/employer's rules.
I wouldn't suggest doing it though, your 401(k) won't grow as fast (less money in the funds), and loans are really cheap right now.
I wouldn't suggest doing it though, your 401(k) won't grow as fast (less money in the funds), and loans are really cheap right now.
True, but it is a loan withdrawing funds from your 401(k). It must be payed back, if you default on the loan you will incure fines and the appropriate taxes.
Originally posted by: Sundog
Stock market gambling with your retirement funds (takes the place of a pension).
what do you think pension funds do?? they invest most of the money too..
Vic
Elite Member
- Jun 12, 2001
- 50,422
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Yes, it's true. You can borrow against your 401k to make a down payment on a house. You have to repay the loan but you get the interest. Think of it as instead of investing your 401k in stock, bonds, or mutual funds, you have it invested in yourself.
most? isn't all the money that is placed towards a pension invested, not just some?Originally posted by: Hector13
Originally posted by: Sundog
Stock market gambling with your retirement funds (takes the place of a pension).
what do you think pension funds do?? they invest most of the money too..
=|
Originally posted by: Sundog
Stock market gambling with your retirement funds (takes the place of a pension).
Have 401K and Pension plan here.
Can borrow against 401K, interest goes back to me, but, if I get canned/laidoff I have to pay back pretty quickly. So, a little risky. I used it to pay prepaid college for our daughter. Could have taken loan via state but this way interest goes back to me.
When I bought my first home, I withdrew half and took out a loan for the other half. I did not have to pay the 10% early withdrawal fee.
Originally posted by: theNEOone
most? isn't all the money that is placed towards a pension invested, not just some?Originally posted by: Hector13
Originally posted by: Sundog
Stock market gambling with your retirement funds (takes the place of a pension).
what do you think pension funds do?? they invest most of the money too..
=|
i'm pretty sure most funds keep some money in cash for safety and to meet current obligations.
Babbles
Diamond Member
- Jan 4, 2001
- 8,253
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Some people are talking about borrowing against their 401(k), however you are talking about withdrawl, which you can do under a Roth IRA plan. There are a list of certain approved 'things' that you are allowed to pay off by withdrawing from a Roth IRA account without penalty.
Most IRA / 401(k) plans will let you permanantly cash out. With SOME IRA plans, they only whack you for the 20% tax (witheld from the check). The remaining funds (401(k) and the other IRAs), you get the 20% withdrawal PLUS an additional 10% "penalty."
If your employer screws up and only take 20% when they should have taken 30%, you WILL get a note from the IRS, and you'll pay penalty and interest on top of the 30%.
Been there, done that.
This is different than borrowing from your IRA/401(k). In many / most / all cases, there are specific limits on how much of your down payment can be borrowed money (regardless of the source). Your mortgage lender may not allow you to borrow from your retirement funds (since it still adds to your debt load).
The IRS website has all the rules about cashing out a retirement fund....watch the language very closely, IRAs are generally only a 20%, but there are some that have the extra 10%. 401(k)s are pretty much 20% +10% .
Good Luck
Scott
If your employer screws up and only take 20% when they should have taken 30%, you WILL get a note from the IRS, and you'll pay penalty and interest on top of the 30%.
Been there, done that.
This is different than borrowing from your IRA/401(k). In many / most / all cases, there are specific limits on how much of your down payment can be borrowed money (regardless of the source). Your mortgage lender may not allow you to borrow from your retirement funds (since it still adds to your debt load).
The IRS website has all the rules about cashing out a retirement fund....watch the language very closely, IRAs are generally only a 20%, but there are some that have the extra 10%. 401(k)s are pretty much 20% +10% .
Good Luck
Scott
Evadman
Administrator Emeritus<br>Elite Member
- Feb 18, 2001
- 30,990
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That is 100% correct. It IS NOT A LOAN YOU HAVE TO PAY BACK as others said before me. You are also allowed to do it for some hardship resons.
Just remember, no mater how you take it out, it still counts as income, so you are taxed on it. But there are no penalties.
I know that you can with some 401k plans. Just make sure that you can with yours before you do it. Can you contact someone in HR or get a copy of the 401k rules?
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