Re: Re: Re: Re: Use 401k 4 a down payment mortgage? 1*In my humble opinion tapping into your 401(k) or any retirement program should be a last resort for a down payment on a home because of the following: 2*1) A portion of your 401(k) account balance is used as collateral for the loan. To that end, those funds are taken out of the market for the duration of the loan term. Although you are paying yourself back interest, typically 401(k) loan rates are nominal (prime + 1.0%) so you would do better with your money invested. 3*2) Your loan is also contingent upon your continuing employment. If your employment is terminated you loan becomes immediately due (most programs have grace periods e.g., 90 day grace prior to asking for the balance in full). If you cannot pay the balance in full, it is treated as an early withdrawal subject to income taxes as well as an early withdrawal penalty. mel ========== 1*Here is another reason, buying a home should be an addition to ones assets not an exchange of same. 2* in the event of foreclosure you would loose both these funds and the house plus what you paid down and all of the money you had made in monthly payments. 3*If you loose your job how do you pay this and the mortgage payments with no income? In this case you loose both the equity and the retirement money. Had you not tapped in to the retirement - at least you would still have that money in the event of foreclosure. THE END ** *** ** LB 59 """""""""```~~~```'"""""""""
Re: Re: Re: Re: Use 401k 4 a down payment mortgage? A 401(k) Loan is not taxed at the point of disbursement. However, tc is correct in pointing out that while your contributions into the 401k plan are pre-tax, your loan repayment will be after-tax. Just something to consider...you may want to look at your PMI payment versus your loan repayment, keeping in mind that your PMI payment is tax-deductible I believe (homeowners help me out here!). Another clarification - In my first post I pointed out that if one failed to pay the loan back it would be subject to an early withdrawal penalty. Someone replied there was no early withdrawal penalty for homes. However, that is ONLY if you initially request a hardship distribution using the 1st time home purchase as a reason. That is separate circumstance from failure to repay a loan. Hardships may also prevent you from participating on your 401(k) program anywhere from 6 - 12 months. So not only did you take cash out, but you aren't able to make contributions to it as well. Suze Orman is okay, but I'd rather take the advice of a person who knew what my specific situation was rather than generic advice....
Re: Re: Re: Re: Re: Use 401k 4 a down payment mortgage? Definitely agree with that ! But, right or wrong, that's not what I got from what tc said: [emphasis mine]I think that's misleading. You would have paid taxes on the money you're making the payments with regardless how you spent it. Taxes are the same in this scenario as they would have been had you never taken out the loan ! I went through that mental exercise when I did mine. Tricky, tricky... Admittedly, I didn't make my point that well in my prior post. Hope this makes it clearer. A small "bonus" in this is that, if you have any tendency to spend what you don't save (bear with me here), you've imposed a little extra "discipline" by channeling the interest portion of the payments out of your pocket and into the 401(k). Hmmmm... One small qualification here. Perhaps you ARE taking a double hit on the interest portion of your payments. More so if your retirement withdrawal tax rate is higher. But I DON'T buy that argument on the principal. No, it's not. Not on my tax return, at least. Sorry, I don't have a link for you. Maybe someone else here has more energy on this. Assuming OP avoids PMI by taking out this loan, that raises the bar somewhat on how well 401(k) investment would have to do to make OP's loan the wrong decision. Big DITTO on that !
Re: Re: Re: Re: Re: Re: Use 401k 4 a down payment mortgage? Thank you crofttk, I was going to say the same thing until I read this. If I had more energy or time you could also discuss the double tax deduction for lower to middle incomes the 2nd one being when you fill out your taxes writing off what you deposited or a portion of the 401k deductions that have already been excluded from federal taxes every pay period. While using the money from the 401k loan now (tax-free). I'm sure the IRS will change that sometime but it still works. There are endless ways and discussions about how the market will perform in the future and by taking out a 401k loan now and paying it back and how it would affect someone long term. Anyone who took a 401k loan out before the Nasdaq took a dive 3 years ago came out all right. Anyways in my situation I am looking at taking out only 5k, not a great deal of money to help with a down payment to avoid PMI now or someday sooner. I know now that it is not considered debt by a mortgage lender, but are the 401k loan payments deducted from my yearly income? The income they go by to determine the overall debt/ratio after a mortgage. Also if the payments would be missing income, would they not count it if the loan was short term? I can't find an answer to this. Anyone?
lbrown59, You are right and that would be the right answer in most situations. Trust me I am looking at $150k at this point and that is the bottom in my area. Unless I went trailer or a one bedroom condo. I am not saying that is wrong for anyone but in my situation it would not be a good idea. I really do appreciate your help on this though.
Re: Re: Use 401k 4 a down payment mortgage? But in my situation it would not be a good idea. J. Vick 71 ================= Now you got me curious. Why wouldn't it be a good idea? THE END ** *** ** LB 59 """""""""```~~~```'"""""""""
Re: Re: Use 401k 4 a down payment mortgage? lbrown59, Now that I can understand the way you use your posts, unlike anyone else I will answer that. A condo around this area went for around $80k-$110k 3 years ago. For some reason a two bedroom condo went up about 60% in a 3 year period. Now they are around $130k-$170k. Just as expensive as a townhome. A $130k condo in this area would be a bad idea, crime, overvalued, etc. Living in a trailer or whatever the proper word for it is probably not a good idea. Closest trailer park to my work would be about a 40 minute drive. Along with trailer park neighbors. The woman I am with did it in the late 1980's and she is so against it. I am a little more open minded and brought it up to her even though I would hate being that far from everyone and everything like work. I am open to any ideas if you do have any though.
Re: Re: Re: Use 401k 4 a down payment mortgage? Thank you for the info. Now that I can better understand where you are coming from perhaps I can offer some suggestions.Give me some time to ponder and I will see what i can come up with. What area are you in?
Re: Re: Re: Re: Re: Re: Re: Use 401k 4 a down payment mortgage? First, a correction on my most recent post, a "point of order" so to speak. In my response to mel's statement that I AM taxed on the loan payments, I should have also acknowledged that I had earlier said plainly that I WASN'T and that what I said was wrong. It was certainly more than a lack of clarity on my part if you took what I first said at face value. However, my claim of no double taxation, with the exception of on the interest, still stands. Now that I have that "clear as mud", (Underline Mine) Sorry to impose on your energy level, but can you tell me what this is ? I'm not picking, I honestly don't understand this and want to make sure I'm not missing out on something when I do taxes ! LOL, I forgot the disclaimer earlier that I'm certainly not an expert, but I guess now I've removed any doubts there ! (Underline Mine) Sorry I can't be definitive but I'm fairly certain when we refinanced our home in April, the broker asked me for all loan payments and I gave him our 401(k) loan payment and he DID crank that into the debt/income and disposable income calculations. And, of course, he did ask the current value of my 401(k) account to add to the tally of our assets. That's as complete an answer as I can give you on that. Oh yeah, and to further confuse all the issues here, on the refinance, we DID liquidate some of our home equity by getting cash out of the deal (approx. $3,500) to pay off that 401(k) loan early ! (now watch the stock market continue to drop so I lose out on THAT decision !)
Re: Re: Re: Re: Re: Re: Re: Use 401k 4 a down payment mortgage? crofttk, (now watch the stock market continue to drop so I lose out on that decision!) Actually 3 days ago I put my 401k into something safe so it should go up. I know exactly what you mean! I will try to gather the energy to get you that information if you are serious or maybe someone will answer that after I hit the submit reply button. It saved me alot of money this year I'll be back with it shortly.
Re: Re: Re: Re: Re: Re: Re: Use 401k 4 a down payment mortgage? On the 1040 form from 2002 look at Tax and Credits. Go to line 49 under Retirement savings contribution credit. Attach Form 8880, Credit for Qualified Retirement Savings Contribitions. Download Form 8880 from the IRS to look at it. You can not claim this credit if the amount your adjusted gross income is more than $25,000, $37,500 if head of household, or $50,000 if married filing jointly. IRA deductions or other adjusted gross income deductions can bring down your adjusted gross income to qualify for this. Check out the IRS site to maybe understand better. 401k does apply to this again. Under line 2 on the 8880 form.
Tempted to Raid that 401(k)? When faced with a sudden cash crunch, it can be very tempting to tap into your 401(k). More Information: â?¢ 401(k)s: Borrowing From Yourself â?¢ The Price of Paying it Back Click here: Money & Business http://member.compuserve.com/pf/ira.jsp?floc=MM7-Fri_am-mm3slot1_link THE END ** *** ** LB 59 """""""""```~~~```'"""""""""
Just be aware if you take money out of your 401K as a loan and LOSE your job your money may become payable in FULL immediately. I'd hate for that to happen to you!
Well, now that's been said for about the fourth time, so I think we all have that clear. Just in case I'm wrong: If you get laid off, your up sh-t crick without a paddle on that loan !
That guy also seems to know what he's talking about: Voila ! OK, now this last one sounds like the propaganda that I'm always seeing that I'm getting sick and tired of ! The guy says this with NO EQUIVOCATION. He should say you risk missing out on the OPPORTUNITY to earn growth which POTENTIALLY could exceed the return on whatever you do with the money you take out ! Sometimes I think they just say this unadulterated sh-t to keep the unwashed masses dirt ignorant and disadvantaged so they can continue to play the market while we maintain their capital base.... *** Sigh ***
Re: Re: Re: Re: Re: Re: Re: Use 401k 4 a down payment mortgage? J. Vick 71: Big thank you ! I am checking this now. Sheesh, I may have (3 yrs. worth max ?) amended returns to do this weekend ! Actually, I just realized, AGI is BEFORE Sched. A deductions and child tax credits, etc., right ? :-( Oh well, I'm gonna read on it anyways !
Re: Re: Re: Re: Re: Re: Re: Use 401k 4 a down payment mortgage? Once again, thanks J. Vick 71. Looks like no amended returns for us. :-( Didn't pass the AGI max. test. But, dang, that line 49 I usually just gloss past because I say to myself, "no bonehead, that already came out of your income and wasn't included in the W-2 earnings amount !". It's scary to realize a mistaken assumption I've made when doing my own taxes. I guess there IS something to be said for, at least periodically, letting H&R Block, et al do your taxes !
Re: Use 401 I'm fairly certain there's a limit of $10k when you use your 401k funds for a deposit on a first home. Have nothing at my fingertips this second, but I heard that number twice when I asked about it.
