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Today I will be discussing whether or not it is a good idea to be using money from your 401K to purchase a new home. There are ups and downs to this decision, but we'll be weighing them out in this video. I have Mike Hernandez here with me today from Trilogy Financial Services.
It's best not to have to tap into your retirement plan to buy a home because it will then affect your retirement, but the government does allow you to take $10,000 out of your 401K for the purchase of a home. You will not be penalized for doing this, but if you make this move before taxes, it will be counted as income and will be subject to taxation.
- When you borrow money out of your 401K you are required to pay it back at some point, so plan accordingly and prepare to put that sum back in your account.
- If you have to take out more than $10,000 you will be penalized, so make sure that it would be worth it to pull out all the money from your 401K. Otherwise, the first $10,000 you pull from a 401K is not subject to penalty (but may be subject to taxation).
- Personally, we would not recommend pulling money out of your 401K to purchase a home, but we do recognize the important need to become a homeowner, and sometimes for new home buyers these penalties and risks are worth it to own a property.
- It's tough to rebuild the assets that you have put aside, so this is another reason not to borrow from your own 401K.
- However, when you purchase a property there are certain taxes that you can deduct, so this can help offset the taxes or penalties owed for pulling the money from your 401K.
- This doesn't make it a total win-win, but you can discuss this with an accountant in order to make the best possible strategy to utilize your own dollar and also develop a plan to replenish your savings.
As always, if you need assistance finding real estate in Orange County or South Los Angeles County, please do not hesitate to give me a call at (562) 316-2915 or email me at melinda.elmer@gmail.com
