Affording a Down Payment: Should You Borrow From Your 401(K)?
As the IRS threatens to existence of no down payment Florida home loans, buyers are wondering whether or not it’s a good idea to withdraw money from their 401(K) to spend on a primary residence.
June Fletcher, a staff reporter at The Wall Street Journal, has the answer:
According to the IRS, buyers can withdraw from company-sponsored 401(k) plans, but it depends on your plan’s regulations. However, if you are under the age of 59½, you cannot withdraw funds from your 401(k) plan to purchase your primary, new home without being subject to a 10% additional tax.
Depending on the rules for your 401(k), however, you may be able to use some of it on a Florida home loan purchase up front. Your plan administrator can tell you how your particular plan works, and explain when and how you can borrow the funds, as well as other rules.
Other down payment options
If your 401(k) doesn’t allow you to withdraw funds without paying a penalty, there may be another option. You may be able to roll the money from the 401(k) distribution into an Individual Retirement Arrangement (IRA). Once in a lifetime, you can withdraw up to $10,000 from an IRA to afford a primary, Florida home mortgage loan for yourself or a family member. You won’t have to pay the 10% early withdrawal penalty on the IRA, but you will have to pay ordinary income taxes on the amount that you withdraw.
You must complete the rollover within 60 days of receiving the funds. Your plan administrator can tell you if the 401(k) distribution is eligible to be rolled over into an IRA.
Although there are some advantages to borrowing against your 401(k) — there’s no credit check, and interest rates for borrowing from a 401(k) are generally low - bear in mind that when you do so, you’re keeping that money from working in other ways to fund your retirement. So make sure you’ve looked into other private and government programs - FHA home loans, for example - designed to help home buyers come up with a down payment.
A good Florida home loan officer will be able to help you find them.
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