Borrowing From 401(k) To Purchase Home
by Ilyce R. Glink
Summary: A writer wonders if borrowing from their 401(k) is a good option for making a down payment on a home. Ilyce suggests starting by talking with the plan administrator but suggests that a 100 percent financing deal may be a better option.
Q: I want to make a hardship withdrawal from my 401(k) at work for a down payment for a house or a condo. Is there a limitation as to how much I can withdraw, and will there be a penalty or tax for withdrawing the money?
A: You have to check with your 401(k) plan administrator to find out if (1) your plan permits you to borrow from it for any reason, including the purchase of a home and (2) how much you can borrow.
If you cannot borrow from the account, you may opt to "cash out" your 401(k). If you are younger than 59 ½ years of age, you will owe a 10 percent penalty on the amount plus whatever regular income taxes are owed in your marginal bracket. You should make a 401(k) withdrawal your last option.
A better option would be to consider 100 percent financing, which is available to borrowers with excellent credit, from many lenders. I'd rather see you pay private mortgage insurance than borrow from your 401(k).
Start with your plan administrator and ask for the rules on borrowing from your 401(k) plan.
NOTE: This column is distributed by Real Estate Matters Syndicate, PO Box 366, Glencoe, Illinois, 60022. This column may not be resold, reprinted, resyndicated or redistributed without written permission from the publisher.
© 2002 by Ilyce R. Glink. Distributed by Real Estate Matters Syndicate.
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