Current Events > Financial experts, is it an okayish idea to pull from 401k to pay for down pay

(+) Yeah! (+)

ment on house.

not a lot. just like 10k to help with closing costs really.

not a loan, a withdrawal. im aware of the tax and penalty

I wouldn't but I didn't have to buy in this inflated market

Dat_Cracka_Jax posted...

I wouldn't but I didn't have to buy in this inflated market

yeah i mean i know itd be ideal to keep it in the bank collecting interesting

but

i need a house. im tired of renting.

Mezcla posted...

yeah i mean i know itd be ideal to keep it in the bank collecting interesting

but

i need a house. im tired of renting.

Nothing worse than paying rent on a payday. I felt like I just wasted 2 weeks to throw it away to some stranger. I'd do it though vs not having enough for a good down payment and having higher interest.

seriously. landlords do nothing yet demand everything.

truely parasites of our society.

Do you have the option to do a loan at all, or no, so withdrawing is the only option?

Guessing no which is why youre asking, but yeah, loan is by far the better way to go over a withdrawal any day.

If you feel strongly about getting a house, which it sounds like you do, and you dont feel like youre overpaying for it and stretching beyond your means, then do it. The penalties and taxes are a hit, sure, but you dont want to pass up on the house and then regret that later.

Im not one of those finance guys who feels strongly that you should sacrifice happiness by refusing to touch your 401k. Hell, I used mine to get the down payment for my current place - but was lucky enough to time that during COVID and make it a CARES act withdrawal and didnt have to pay any penalties and fees.

CE_gonna_CE posted...

Do you have the option to do a loan at all, or no, so withdrawing is the only option?

well tbh i hadn't considered a loan. we dont have an income problem but i want to hold on to cash as much as i can

Mezcla posted...

well tbh i hadn't considered a loan. we dont have an income problem but i want to hold on to cash as much as i can

Got it. That said, if you can swing it, go for the loan instead. Not sure how it would work for you, but under my plan the only cost for the loan was a $50 fee from Vanguard.

There is an interest rate you have to pay on the repayments, but you repay that interest back into your own account. So you are literally paying the interest back to yourself.

So with a loan there would be no penalties or taxes due like there would be for a withdrawal (other than the perhaps nominal processing fee mentioned earlier). If you cant make repayments or change jobs or something and have to close out the loan, it would just be treated like a withdrawal at that point. The loan will absolutely keep more cash in your pocket in the long run vs doing a withdrawal.

I took out a loan in 2018 to start up my Robinhood account and pick out my own stocks, as well as paid off some student loans. Best move I ever made and I have no regrets, and will have it fully paid off here in another half year or so.

i'm not a financial advisor but i'd would rather take out a loan then pull from 401k, you pay penalties

thanks ill look into the loan option. i remember my mother took out a loan with her 401k when we were struggling for a bit so i wonder if its more common that i think

Mezcla posted...

thanks ill look into the loan option. i remember my mother took out a loan with her 401k when we were struggling for a bit so i wonder if its more common that i think

I wouldnt say its super common, but thats likely because you get a lot of gloom and doom when reading up about them and a lot of articles tend to scare people away from considering them.

At the end of the day though, from a pure accounting perspective its one of the best loan options you can go for if you have enough in your account to take advantage of it in light of the low fees and interest repayment back to yourself (vs paying interest to a bank if you were to do a standard loan). And it certainly is a better option than withdrawing and immediately incurring the penalties and tax hit.