Using retirement money...ever a good idea?
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Anonymous
| We did this to buy a house and doubled our money in 3 years |
Anonymous
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You need $10-20k only?
Save for it, don't touch the retirement account. |
Anonymous
This. |
Anonymous
Thing is, the money you save up is going to be taxed and go away forever anyway. With a 401k loan (I'd keep to 10% of your balance MAX), you're putting the money back for retirement -- consider it an investment in a bond fund which is certainly an important part of an investment strategy. Yes, the money you're using to pay the loan is taxable, but so too would the money you accumulate through saving over the next 2-3 years. The money you use to make car payments is also getting taxed and instead of you getting the money back eventually, it's the bank/dealer/whoever. The keys are -- can you afford to pay it back immediately if needed and how stable is your job? |
Anonymous
| OP, DO not listen to these people, take the loan, you need it. This is really not gonna make you poor in retirement, it is $20k not a million dollars people. By the time you wait to save $20k to get a house, house prices might appreciate for even more than that making it pointless, everything else equal. Take the money out and repay it when you can. I work in Finance btw and this would be my advice if you were my client. |
Anonymous
| The loan payment will count against your DTI |
Anonymous
Point is, it might be better to just liquidate and use it as cash. |
Anonymous
+1. we did it, were nervous about it, but ended up being the right decision for us. we bought our house in 2010. great neighborhood (our home was way less than the average home in the area), great public schools all the way to HS, walking distance to transportation. between downpayment and closing costs we were short 24K (the house was 700K). my DH is a federal employee with a very stable job, he borrowed the money from his retirement account. there was no penalty and a very low interest. it was the right time to buy, with prices falling, few buyers, interest rates going down. we were renting before in a 2bd apt (with two kids) paying almost 2000 in rent. now we pay a mortgage, but get the interest deduction, will be able to live in this house forever and send our kids to public school, and our house has appreciated a lot in the past 3 and a half years. with the tight market and higher prices, it would have been difficult for us to buy in this area. if we waited to save 24K, we might have missed the chance. I agree with others that you have to think carefully about doing it, and consider if the need for the loan is caused by the fact that you are stretching yourself too thin. in our case, we knew that our day care costs were going to end in less than two years and that I was going back to work full time instead of part time, and given the situation, we decided to take the risk. but buying a house in a situation where you determine you can afford it is the only instance where you can borrow from the retirement account. we would never, ever, do this to fund a lifestyle we cannot afford, including buying an expensive car, vacations or stuff like that (we have only one car, 8 yr old, and we will keep using it for other 10 years as far as I am concerned - any extra money we have go to fund our retirements, savings, kids' college savings, and to pay our mortgage down faster). if you need to borrow from a retirement account to buy a car, then you cannot afford the car. |
Anonymous
| We plan to take a 401k loan to supplement our down payment when we buy in a couple years. We have expensive childcare (nanny) currently, which limits our ability to save. But my youngest will be in school in 3 years, at which point we'll take the loan, buy the house, and be able to repay from part of the income that's currently going to the nanny. Without some clear indication that my net will be higher shortly, we probably wouldn't do this. |
Anonymous
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I am fairly conservative with money and I would consider the loan with some caveats. First is how stable is the job of the person taking out the 401K loan? I'm in IT and have gone through companies buying the company I work for, losing federal contract and basically having to go to the employer that won the contract or have no job, bankruptcy of a company, outsourcing of IT at another company and crazy boss at another company. Now the last one was a choice to leave but in all the other cases any 401K loan would have been due within I think 6 months because I would no longer have been with the same employer ...even in those cases where I still had a job but different person signing the paycheck. The other question is can you really afford the house in general , do you have enough for a house emergency, home maintenance, still have a life happens fund, as well as still being able to save for retirement and payback the loan? Will you have any new childcare expenses, which can be a mortgage payment right there, that isn't currently factored into your budget? Personally I would only consider it if I knew I had the ability to save the 10-20K pretty quickly but it was the timing of right house, right rates that may not be there in a year OR I had some expense I knew would be going away that would free up that money, like a kid going to public school next year and that would save me $1000/month when it happened.
Bottom line is if life is getting more expensive not less, and it would take a long time with what you are earning to save up another 10-20K, I think you are taking a big risk that the ball always bounces your way and think it makes more sense to find a less expensive house or look for ways to save money and cut expenses more. |