Has anyone ever taken $ from their 401k

I plan on taking out money from my 401k for the down payment on our house. Has anyone ever done this? Is it better to just take a loan against your self or just take the money (i know I will have to pay about 10%) Thoughts?

Thanks

Re: Has anyone ever taken $ from their 401k

i think it depends on your company policy..i just took out $20K from mine with a 10 year loan it amounts to about $90 a payperiod..it is basically a loan to myself with no tax penalties.

Re: Has anyone ever taken $ from their 401k

Yes. We did when we bought our home in 2007. We got killed at tax time, but being the market crashed it was better that we actually got to USE our money vs. seeing it just disappear.

Re: Has anyone ever taken $ from their 401k

Honestly, I would never take 401k money for a house. If you don't have it saved up or can't get a loan otherwise, you just cannot afford it. I am sorry - I feel so strongly on this. What happens if you lost your job? You would have to be able to repay it immediately, and taxes on the money are horrible. Yes the market stunk in 2007 for pp, but the market has completely bounced back and then some, had you done nothing and held onto your money it should have come back. Retirement may be a long way off, but the money you save now, as a 20-30 year old has the most tie to grow and compound. Do you have any savings you can tap into or put less down? The interest rates are lowish now. I would speak to a certified financial planner before tapping a 401k perhaps you have other options.

Re: Has anyone ever taken $ from their 401k

Re: Has anyone ever taken $ from their 401k

Re: Has anyone ever taken $ from their 401k

Re: Has anyone ever taken $ from their 401k

Yeap, we did this. House equity is already worth more then my 401k. For me, it was a better investment and regarding the 401k, you pay it back in your pay check so its no different of a loan but at 0%.

No other way to save so much money down in this economy.

Now, if you leave your job, you need to pay it back within a certain time frame, 30-60 days else you will be under regular withdrawal rules and get taxes and penalized.

Re: Has anyone ever taken $ from their 401k

You don't have to permanently withdraw it but instead take out a loan against it. Most companies provide very low percentage loans that are to be repaid over a desired period of time. The only backdraw to this is that if you lose your job, you have to repay the loan immediately.

Re: Has anyone ever taken $ from their 401k

We took out about 5k from my 403b as a cushion. The $ doesn't actually get deducted from my account and I earn interest on the full amount. Also, the interest that I pay on the loan just gets put back into my loan so i'm basically paying myself to borrow $.

This is with Mutual of America. I don't do payroll deductions. I pay them directly quarterly. Since we only borrowed it as a cushion, if I had to pay it back all at once I could.

Message edited 6/6/2013 1:41:40 PM.

Re: Has anyone ever taken $ from their 401k

I know plenty of people who have borrowed from their 401k for many different financial reasons, not just to buy a home. It's really a matter of personal finances and what you feel is best for your current situation. It's an option, maybe not always the best, but it's certainly something people have done.

If you plan on taking money from your 401k, you can take a loan from your account instead of a withdrawal. You will pay some pretty heavy taxes for early withdrawal, whereas with a loan you pay it back through payroll deductions and there is no penalty (other than the temporary loss of retirement savings). Some plans offer interest free loans, while others there is a low interest rate.

Each company's 401lk plan is different. So look into what your plan offers.

It is true that you will have to pay it back if you lose your job or leave your job on your own. If you can't pay it back, it is then treated as a withdrawal, and you will have to pay taxes on the remaining outstanding balance owed.

ETA: Also, keep in mind that if you do decide to take a loan from your 401k and repay it through payroll deductions, your weekly take-home will be less. When calculating how much you can afford for a monthly mortgage, back out your loan payments from your paycheck too. You don't want to assume you can afford $2,000 a month for a mortgage and then realize you are paying back your loan and wind up taking like $200 less a month. Woops!

Message edited 6/6/2013 12:01:02 PM.

Re: Has anyone ever taken $ from their 401k

Re: Has anyone ever taken $ from their 401k

Message edited 6/6/2013 1:30:38 PM.

Re: Has anyone ever taken $ from their 401k

We did. We were only 23/25 years old and had plenty of time to save for retirement (that was 10 years ago). It was the best decision for us. We did pay a penalty for taking more than the allowed amount.

You have to make the best decision for your financial situation. We contribute plenty to retirement and are not worried at all.

Re: Has anyone ever taken $ from their 401k

We did it. We didn't take a loan. We just took the hit with the penalty.
It's what worked for us. And we didn't regret it at all.

Re: Has anyone ever taken $ from their 401k

Yes. We replenished it in 2 years. As long as its going to something smart, do it!! Life is short and there are no guarantees Replenish it and enjoy!!

Message edited 6/6/2013 3:45:40 PM.

Re: Has anyone ever taken $ from their 401k

I just attended a 401k seminar and 30% of people with a 401k have an o/s loan. In case anyone was wondering, lol!

Re: Has anyone ever taken $ from their 401k

yes, I did. It was a loan which I'm paying back each pay period. The amount is small so I don't really feel it in each check.

Re: Has anyone ever taken $ from their 401k

I don't know if this is still true but when we bought in 2007, first time home buyers could borrow up to 10k without penalty. Since we both have 401k's and IRA's, we just borrowed from one. No penalty but it did get added on to our taxable income for the year.

I can understand the sentiment about not buying a house if you can't afford it. To the outside observer, you would probably think that way about us since we borrowed 10k from his 401k, only put down 5%, and have an interest-only mortgage for 10 years. But you would be wrong. We did all of the above to be conservative and still had healthy savings in the bank when we closed. We have a small home that is not expensive to maintain and enough savings to keep it for a year if both of us lost our income. We don't have children though, and don't need to save or plan for that possibility. So our extra goes into home improvements, vacations, etc.

I'm just saying that not everyone's situation is the same and you need to have a comprehensive plan for disaster scenarios and be smart and conservative especially in this economy. If that includes borrowing from your 401k, there are ways to offset that 'hit'.

Has anyone ever taken $ from their 401k

I know most policies are that you can't borrow over a certain percentage. I'm sure DH's is that he can't borrow against more than 50% of what he has in it.

Re: Has anyone ever taken $ from their 401k

All plans have a limit on borrowing of 50% of the acount balance. Some plans have a restriction of a $$ amount too.

Additonally, it was mentioned about the early withdrawal penelty of 10%. Keep in mind, its not just 10%. Its 10% on top of your marginal tax rate for federal and state. So lets assume you make jointly $75K , That means you're paying 25% federal rate, 6.45% NYS rate, and 10% on top of that. So your tax will be approxamately 41.5% of your withdrawal.

you could take a loan. However, you shoudl consider the securirty of your job and the repayment period.

I audit a bunch of 401k plans. I don't think that 30% number is accurate as the percentage of people with loans, at least in the plans I see, it is far less. What i do see, is that those people who take loans, continue to take additonal loans and will have multiple loans outstanding.

it is an option out there. I thinking taking a distribution defeats the purpose of putting the money away, and costs you additonal from just getting it in your paycheck(10% penelty). Loans, I would consider in an emergency, but for whatever time period you have your money tied up in the loan, you're not getting the benefit of having your money in your investment choices.

Re: Has anyone ever taken $ from their 401k

Re: Has anyone ever taken $ from their 401k

I have taken a loan on my 401K.... worked out well.
I would only do it if I absolutely had to.

Has anyone ever taken $ from their 401k

My job allows a 30 year loan on up to $50,000 (or half the balance). I was able to take the full amount for a larger down payment thus a lower monthly pmt on my 30 yr fixed mortgage.

The good thing about this scenario is that I can pay off the 401(k) loan early when I have the balance saved and have a lower monthly payment on the 30yr mortgage for the rest of my life. If I managed to save the 50,000 and apply it to the 30yr mortgage then I would not see a lower monthly payment - although my principal owed and payoff time would be lower. This did not matter to me. I rather have the security of the lowest monthly payment and it frees up cash that I can save and put towards other investments going forward.

It really all depends on your financial strategy, job security, other sources of income, etc. Its not a simple case of being able to afford the down payment or not. I was able to do 20% down payment on my house. The 401k loan allowed me to put even more down.

I have since saved more than the balanced owed on my 401(k). Its nice to have it in the bank in case another investment opportunity arises. If it doesnt then at some point my savings is going to equal my mortgage balanced owed and I will just pay off the mortgage in full early.

Good luck and just dont put yourself in a situation where you are buying something you will not be able to afford.