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gear jammer | Cash in 401k? |
I am thinking of cashing in 401k for a down payment on first house.
I have worked 3 years with 6 years required to be "vested"
Can I do this? and what penality will I pay.
This account is with fidelity......I have 14,000 dollars with probably vested value of 7,000 dollars. |
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INACTIVE
|
First time home ownership is one of the few exceptions as a reason for withdrawing from a 401K plan... talk to your Fidelity rep. I believe you still have to pay the 20% taxes on the money you withdraw. Now, if your plan is doing well and making you more money than your mortgage interest rate would charge, leave the money in there to continue building for you. If you seriously need that money for a down payment, you may not be able to afford the mortgage, taxes, insurance, maintenance and other costs. Why not start saving the difference between your current rent and your proposed housing expenses for the next six months to a year before buying? You will (a) know that you can afford the home; and (b) have a nice downpayment. When you take money out of the plan, you will have stopped the interest from accumulating and that may turn into alot of money by the time you officially retire and need that money. Why not consider a lower priced home as a starter and build equity that you can eventually put into a larger home down the road? Only you know your budget but I just think that needing the 401K plan for a home might be a flag that the home may not be within your budget if you cannot raise a downpayment through savings. |
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WealthBuilder
 |
By gawrsh, No. You can do it, yes, you can. But.....you not only lose the momentum of your investment in your long-term plan, but you lose REAL dollars now!
You don't get to take out the unvested money. Only vested contributions (or your own salary deferrals).
The penalty is that you pay regular income tax on the amount you withdraw. THERE IS NO PENALTY of 10% for first time homebuyers.
So if you are in the 25% bracket, YOU LOSE not only the $1750 now, but you lose the GROWTH of that $1750 for the next 40 years. (BTW, at a nominal 10% growth, you're giving up $95,000 future dollars!)
If you have decent credit, you can oftentimes get 100% loans or in some places 105% loans. While the money is expensive, usually you'll find that your income will increase over the next few years rapidly and it'll feel like nothing soon. One day, you'll even refinance or sell the house--long before you pay off the 30 year mortgage over the whole 30 years!
My advice: KEEP YOUR RETIREMENT MONEY OFF LIMITS (til you retire, that is!)
The WealthBuilder
Tax Specialist |
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ewr750
 |
GREAT QUESTION!
well, i don't knkow enough about your financial sitiuation to say anything certain, but shooting from the hip I would say: a) leave your $14k alone even if you change companies. b) roll it over to your new company if you understand the loss involved. c) Borrow against it-you will need to contact Fidelity about this. It is an EXTREMELY popular thing to do....it ends up being a sort of mortgage you made out to yourself......with only yourself to repay.
d) use other monies for down payment, don't forget closing costs.
IN THE END, unless your 59-1/2, you will be socked with a 20% or worse penalty from the IRS. Your bank may assess early withdrawal penalties as well. Best avoid touching that money. |
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Ying
 |
The penalty will depend on your terms and conditions and you need to read that up or call fidelity to ask them.
A house is a good investment, as long as you can afford it and have a steady income...why not? |
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CCTCC
|
Bad idea. On top of the penalty you incure, you will owe about 30% or more in taxes.
Think of it this way. Would you borrow money with a 30% interest rate?
A loan is an equally bad idea, if not more so. With a loan, if you leave the job for any reason, you have to pay the balance due in full within 30 - 60 days. |
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heels9923
 |
Bad idea. I highly recommed NOT touching money in retirement accounts, even to buy a house. $7,000 is not going to make a huge difference anyway when it comes to your monthly mortgage payment. Find the money for your down payment elsewhere, and if you don't have any other money, then don't buy a house until you have saved enough for a down payment. |
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b_eazy01
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not sure exactly how much but there is a big penalty |
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Thomas K
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The wiser move is to take out a loan against the 401(k). Since you are not yet 59+1/2 years old yet, you pay a 10% penalty plus the taxes due. Look into it. |
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Jerry
 |
Yes you can do this, however you should look at other options first. I assume you are less than 59 1/2 years old. Your withdrawl will be considered income so be prepared for that aspect. |
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Alias Smith & Jones
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There are certain reasons that are permissable to cash out early - I believe that first house purchase is one of them.
Simply talk with Fidelity about it - they will know the facts of it (separate from what they might actually advise).
Also, "terms and conditions" on 401(k) are defined by IRS and Federal law, not Fidelity. Just FYI. |
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