Tap a 401(K) for a down payment?
Michael Nickerson and his dog Hunter
Michael Nickerson and his dog Hunter
It may be possible to get money from a 401(K) plan to use as a down payment on a house-but it's not a good idea.
If you take the money as a distribution, you pay taxes-plus a 10 percent penalty, if you're under 59 1/2. That's a big bite. You may be able to take the money as a loan; many plans allow you to borrow half of your account balance or $50,000, whichever is less - but it's still not a good idea.
Payback on the loan will be in after-tax dollars, more difficult to come by than the pre-tax dollars originally contributed. And should you lose your job- or leave it - before the loan is repaid, it's considered a distribution. You'll owe regular income taxes on the loan amount, plus that penalty.
The most important reason not to take money from a 401(k) account is that you sacrifice tax-free growth. Money taken out now will make a big difference when you retire.
Event Date
Address
United States
