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?

[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?
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.