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Tapping The 401k |
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Dear Edith, I am a single woman, 51 years old and never married. I have lived in apartments all of my life and would like to purchase my first home. I plan to move out of state and use my 401K money as a down payment. Can you suggest steps I can take to get minimum penalties? I have $65,000 saved and make approximately $40,000 a year. I have so little saved for retirement that I feel buying a house is the only way for me to get ahead |
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It’s possible to take up to $10,000 from an IRA to use as down payment on a first home, before retirement age, without the usual 10 percent penalty. This rule doesn’t apply to 401k’s, though.
I feel strongly that you shouldn’t touch your retirement fund. Money in there can grow untaxed, a terrific benefit. If you took—say--$10,000 out, you’d owe a $1,000 penalty and also income tax. You might end up with not much more than $6,000, and you’d have lost a valuable chance to build for your retirement.
Your statement that it’s “the only way for me to get ahead” has me worried. The frantic rise in home prices in many areas has led some people to think that buying a home is a great speculative investment. If that’s your reason for buying, forget it. The excitement is over in most places, and it’s not a safe game for you. If you are moving to a low-cost area, assuming you have few other debts, you may well qualify for a mortgage loan.
If you’re moving to a high-cost area, you don’t have enough to buy at all.
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Edith
Originally published on October 6, 2006 |
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