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Re: OT-Can I take $$ from 401K toward home purchase>> Posted by EGD [Email] (#663) [Profile/Gallery] (more from EGD) on Wed, 4 Feb 2004 22:11:40 In Reply to: OT-Can I take $$ from 401K toward home purchase>>, elSVT, Wed, 4 Feb 2004 08:35:14 Members do not see ads below this line. - Help Keep This Site Online - Signup |
The best solution is not to touch the 401(k) if at all possible but to look for low downpayment solutions. You have to weigh the heavy costs involved against the benefits that may accrue like rising value and better living standards. But you really need to discuss this with your plan administrator -- not just some HR person -- and a tax advisor.
Withdrawal: The Federal penalty on a hardship withdrawal is 10% of the money withdrawn so if you withdraw $50,000 the penalty alone -- not the regular income taxes -- is $5,000 plus the 20% tax withholding ($10,000). In other words, withdraw $50,000 and the Feds take $15,000 right off the top, not to mention what you owe your state. You might only net $30K from a $50K withdrawal.
Loans: A loan against your 401(k) is one approach but remember that you're paying off pre-tax money with after-tax money. In other words, paying off a $50,000 loan @ 5% for 15 years -- even to yourself -- will cost you around $71000 in after-tax dollars. And you'd probably have to earn $100,000 pre-tax to net $71,000 after-tax.
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