Taking Out Your Retirement Money Early

[RiverKitty]

My girlfriend did this so she would have enough money for a down payment on a house. Of course she won't be getting as much of a monthly check from the IRS when she retires.
What are the positives & negatives?
How do you do it? :confused:

[Dr. Eagle]

Originally posted by RiverKitty
My girlfriend did this so she would have enough money for a down payment on a house. Of course she won't be getting as much of a monthly check from the IRS when she retires.
What are the positives & negatives?
How do you do it? :confused:
She wouldn't have gotten a check from the IRS anyway unless she works for them.
If you are talking about a 401K, IRA or other annuity plan, big downside is that if the money was placed in the plan pre-tax then you pay the tax at the rate you are paying for the rest of your income that year, plus 10%. So if you are paying in the 26% bracket, you are paying 36% (I don't remember the brackets anymore since they were changed). Your state will also tax it if you have state income tax often plus a penalty.
It 's an expensive way to go that's for sure..........
:(

[AdrenelineOD]

Never spend your capital.... Very important. New house- FHA loan 0 down we did and still have retirement and stock.

[Mandelon]

Can you not make withdrawls from the 401 K for a few select items like first home purchase and maybe education expenses?
I though there were a couple of exceptions to the rule now....?

[rivercrazy]

If memory serves me correctly, there is some exclusions from IRS penalty for removing these funds for buying your 1st home.
The advantages are all those with owning a home (tax deductability of interest, having your own roof over your own head, potential rise in asset value, etc)
The disadvantages assuming there is no penalty is the opportunity cost of not having investment returns on the portfolio (tax free until withdrawal), additional property taxes on the home, maintenance costs, insurance, etc.

[Dr. Eagle]

Originally posted by rivercrazy
If memory serves me correctly, there is some exclusions from IRS penalty for removing these funds for buying your 1st home.
The advantages are all those with owning a home (tax deductability of interest, having your own roof over your own head, potential rise in asset value, etc)
The disadvantages assuming there is no penalty is the opportunity cost of not having investment returns on the portfolio (tax free until withdrawal), additional property taxes on the home, maintenance costs, insurance, etc.
If my memory serves me you are correct. It depends on the plan, however you can take out a LOAN against it and pay it back with interest. I believe depending on the plan that there may be other exclusions that allow you to Loan yourself the money, generally it is for college tuitions etc.
I don't believe you can WITHDRAW money w/o penalty.

[1stepcloser]

If the money is used for purchase of primary residence there is no early withdrawl penalty, if its coming from a 401(k).
Of course, the money will no longer be able to earn for the future, but real estate is a fantastic investment.
Check with your HR director at the company.

[rivercrazy]

I think you have to pay income tax on the pre-tax earnings invested. But if its a first home purchase, I don't think the penalty applies. Either way they take a hard bite out of the withdrawal.
If cash flow is good enough to service the loan on the house and all the expenses in addition to additional debt service on a loan against the 401K assets, it might be a good way to go.
Or like others here have said, look into low down payment options like FHA, 80/10/10 programs, etc...

[Dr. Eagle]

Originally posted by 1stepcloser
If the money is used for purchase of primary residence there is no early withdrawl penalty, if its coming from a 401(k).
Of course, the money will no longer be able to earn for the future, but real estate is a fantastic investment.
Check with your HR director at the company.
Like I said, it depends on the plan. My 401K does not allow early withdrawls for any reason, unless you close the account. You can borrow your own money and repay it w/interest.
some are similar, some may be different, just depends on the plan and administrator.

[summerlove]

I'm pretty sure you can also "borrow" your money from a qualified plan, like a 401K, 401A etc. When you repay it you still maintain that nest egg and the "principal" remains the same.
The 10% penalty really sucks...I wouldn't do it.

[1stepcloser]

Originally posted by summerlove
I'm pretty sure you can also "borrow" your money from a qualified plan, like a 401K, 401A etc. When you repay it you still maintain that nest egg and the "principal" remains the same.
The 10% penalty really sucks...I wouldn't do it.
Indeed, you can take a loan against most 401(k) plans, however the amount loaned is "removed" from the investment funds, and given to you. the loan balance becomes a seperate "fund" of its own, where it earns interest that you pay yourself. that money is then redistributed back to the investment funds that it came from as it is repayed.
Not a bad thing, just shortening your potential for earning.
But again, real estate is king right now.

[Boozer]

Like you guys said with the 401k deal.
If it is an ira then you get taxed out the ass but if you are using it to buy a house you pretty much break even at the end of the year instead of getting a huge check back from uncle sam.
My mother just bought a house and withdrew money from her ira to do it. The monthly savings in taxes that she is getting that she would not have gotten renting more then made up for the penalties and taxes that she had to pay. It is really something that you have look at on a case by case basis. Meaning, something you need to research on your own individual level rather then making a decision based on a general concensus.

[Tom Brown]

What's the minimum down payment you folks can make on a home purchase?
Up here in Canada, it's 10% but there are exceptions. There was a program that allowed first time home owners to go with 5% down and now I think there is a program that allows 0% down but may require collateral such as a RRSP (our equivalent to your IRA).

[welk2party]

Borrowing from your 401k is usually recomended for the purchase of a home. You are essentially borrowing from yourself and repaying yourself interest. Since a home is the best investment for most it just makes sense.

[Mrs. Restless22]

Originally posted by welk2party
Borrowing from your 401k is usually recomended for the purchase of a home. You are essentially borrowing from yourself and repaying yourself interest. Since a home is the best investment for most it just makes sense.
That is how we looked at it when we pulled out money out to put down on a home. We did alot of calcs and it worked out that the money down, and monthly saving in mortg. payment, equalled more then it would have made us. We were able to pull it out without any tax or penalty....

[Boozer]

Just depends on the program and how good your broker is. Although, after my mothers experience with a broker who was suppose to be a friend I don't recommend using mortgage brokers to anyone. If you have A or B paper then you should go to a lender directly and save a ton of money and get a better interest rate.
You can buy a home here with 0% down and sellers pays closing costs. However, it is recommended that you put at least 2% down and lenders preffer if you put down 5-10%
When my moms deal was going down it was going to originally be 0 down and seller pays closing up to $7500. She had 25k in her ira and we researched what it would it cost to pull 6k of it and throw it down on the house. Even after the penalties and taxes and everything else it still saved her about 25k in interest. Not much money if you are looking at it from a short term point of view but my mother will probably live in the house until she either dies or has to go to an old folks home so it made sense in her case.
Originally posted by Tom Brown
What's the minimum down payment you folks can make on a home purchase?
Up here in Canada, it's 10% but there are exceptions. There was a program that allowed first time home owners to go with 5% down and now I think there is a program that allows 0% down but may require collateral such as a RRSP (our equivalent to your IRA).

[Sleek-Jet]

Remember though, you are repaying the 401k after taxes, so essentially that money will get taxed twice. Once now, during the repay timeframe, and again when you cash the 401k out.
Something to think about.

[Boozer]

Do many of you have 401k's?
I think they are a scam personally. You put all this money in to escape taxes now but when you go to cash that sucker out you're going to get robbed blind.
I have an IRA and so does half of my family. The money is already taxed when you invest it so when it comes time to cash out the taxes are not nearly as bad. Plus my ira seems to be doing a lot better then friends 401k plans when it comes to overall earnings.

[RiverToysJas]

What's up Kitty? You hook-up with this old dude, with the lake lice and production boat, and he's already got hands in your retirement account? http://op6c.com/forums/html/emoticons/shame.gif
I'm sure he'll be able to double your money for you, if you just trust him! ;)
Oh sorry, you're asking for your "friend". ;)
RTJas :D

[welk2party]

Although, after my mothers experience with a broker who was suppose to be a friend I don't recommend using mortgage brokers to anyone. If you have A or B paper then you should go to a lender directly and save a ton of money and get a better interest rate.
I would have to disagree with you Boozer. I have been a loan officer for a bank and a broker. Both have their pros and cons. You can run into problems using either. Sorry your mother happened to find some trouble.

[STROKER ACE]

retire have a house a little money then get sick and what do you end up with NOTHING "retire" that is that drink some coffee at 5 in the morn. go to bed at 8 sit on the front porch and wave at cars going by when your old noone cares anyhow so draw the money call me and retire early

[SERIOUS ISSUES]

What is the name of the retirement plan?????
I do know the rules for distributions of the plans. tell me what you have and I will give you some options.
All plans have differant rules. It depends on if i is a Roth, Traditional, SEP, Simple, 401k, 403b, annuity ect......
also, first time home purchase or have you bought a house in the past. what is the amount you are wanting to pull out? there are rules there as well.