Should I stop saving in 401K for short period to increase house down payment fund?
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Anonymous
| DH and I currently max out our 401Ks (to the IRS limit each, approx $18K per year). We have done this as long as we've been married, so currently have over $300K in retirement funds (aged late 30s). We are looking to buy a house in the next 2 years or so. We have a decent down payment saved now (approximately $150K) but am thinking of reducing 401K contributions for next 2 years or so to significantly increase down payment. We both have 401K match, so I would reduce contributions to the match amount. For just me (haven't run the numbers on DH), I'd contribute $1100 or so less per month to 401K but that would all go to down payment fund. So, in two years, could have another $26,400 down payment (probably about the same for DH, so maybe increase of $50K in down payment combined). I know that over time, that money in the 401K makes more but I think that I would value having a lower monthly mortgage more than incremental 401K savings. Has anyone done this? Thoughts? Tax implications? Thanks! |
Anonymous
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I think it is a fine decision to reduce to the match for a short, defined period of time to pursue some other financial goals.
(Not that it matters, but Dave Ramsey also says the same, it's okay to do it for a short period of time for a down payment.) |
Anonymous
Ha, PP - this is OP and I'm a long time Dave Ramsey listener which is where I got the idea  But I wanted to see if I got any other perspectives that made me think differently.
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Anonymous
PP here... I'm a 10-year Dave Ramsey listener! We paid off our house last week. So yeah, I'm a big fan of big down payments! Have you done the math to see if you're on track for retirement if you reduce? |
Anonymous
| If you're going to have 20% for a downpayment anyway, then you should not stop your 401k contributions. Interest rates are low, you're just burning money if you put towards your house over your 401k. |
Anonymous
| I would not. At late 30s, you still have 20 more years of working. i'd go with lower down payment than stopping 401k. |
Anonymous
Will you explain what you mean by this? Why burning money to put money towards house instead of 401K? Ins't having more monthly cash flow because I put more in down payment worth something? I could conceivably then invest more in retirement later bc have lower mortgage? |
Anonymous
Congratulations! This is amazing. Are you going to call in and do the debt free scream?? I can't imagine ever paying off my house in this area. But would certainly love to which is why I'm thinking of being "gazelle intense" for the next 2 years to throw as much money as possible at our down payment. |
Anonymous
I'm not. I have a pretty distinctive voice and we're pretty private about finances in real life. We live a very modest lifestyle and people probably think we make about half (or less) of what we actually do - which is how we were able to pay off the house so quickly. Combination of buying pretty conservatively + living pretty conservatively. We're taking a cruise at Thanksgiving though! The ultimate middle-class celebration! |
Anonymous
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I would not. Let's say you decrease your contributions 12k, that only nets you 8k after federal and state withholding. If you leave that 12k in the 401k it would be between 69k (5%) and 121k (8%) in 30 years. Mortgage rates are pretty low, you are better served with that money in the market where it should earn a better return. Your marginal tax rate is also much higher now than it will be in retirement.
As an aside, I would not look at 300k as all that much. We are 35/36 with 1 who only got access to a 401k in 2011 and only recently broke 200k hhi, we have nearly 440k in 401k and another 180k in IRAs. Not saying 300k is bad - it's not - but I would not feel comfortable backing off of retirement savings. |
Anonymous
Not OP - but PLEASE tell me how you did this! |
Anonymous
That's insane savings, considering you only got the 401K four years ago and just recently broke 200k in HHI. WTF?!?!?! |
Anonymous
I was a FARMS kid at points, knew that was not something I wanted for my kids, so I pushed myself to save. Graduated 2002. Didn't do well the first 2 years out of school. The figures below are contributions for the calendar year, not tax year (for instance 2008 has the 2007 tax year Ira contributions and the 2008 tax year contributions), including the vested company match. my best advice is to just max the 401k and figure out how to live on the rest. Contribute to an IRA (traditional or roth depending on the limits and your marginal rate) if you can, fund a Roth IRA with emergency funds if you don't otherwise have the money. 2002-2004: 11,427 contributions (my 401k and IRA) 2005: 15,200 (my 401k, both wife and my IRAs) 2006: 27,600 2007: 23,400 2008: 37,600 2009: 19,800 2010: 25,600 2011: 43,400 (wife gets 401k mid-year)) 2012: 51,200 2013: 64,500 2014: 54,500 2015 so far: 23,200 Total contributions of 398k, gains of 232k. |