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I want to borrow to buy a house?

How much can I borrow against my 401 K and how much is going to cost me

Jul 22, 2014 by Elgin from Aurora, CO in  |  Flag
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I'm generally not in favor of 401(k) loans. Remember, the money in your 401(k) is pre-tax and you will be repaying the loan in post tax dollars. Basically, the money you use to pay back the loan (and interest) will be taxed twice. Also, if you leave the company, for any reason, you have to pay back the loan within 90 days or it will be considered a distribution subject to tax and penalty.

Your employer may not allow loans and may limit the amount. Check the Summary Plan Document.

With that said, here is the IRS limit. The lesser of:

$50,000

or

The greater of 50% of your vested balance or $10,000

Comment   |  Flag   |  Jul 23, 2014 from Alexandria, VA

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Urban C Fleming Level 8

Elgin,

You can borrow the smaller of your vested share or up to 50,000. They will charge you interest on what you borrow (ask your HR department what the rate is). The term for a home purchase may be around 15 years.

The risk you take when borrowing from your 401k is if you leave the company for any reason, or do not pay the loan per the terms, the outstanding balance is tacked on to your income for the year. You may be subject to a 10 percent penalty if under 59 1/2 as well.

There are other options on the table to buy a house and protect your retirement. Consult a CFP in your area to review your situation for the best results.

Best, Urban

Comment   |  Flag   |  Jul 23, 2014 from Jacksonville, FL

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Not a big fan of this at all. Not only for the reasons mentioned above but you also lose the compounding interest of that money which defeats the purpose of having a 401(k). I would wait on the home purchase if this is the only way you are going to access money to for a down payment. Ultimately, you will need more money than you think for fix up, furniture, etc.

Comment   |  Flag   |  Jul 24, 2014 from Alpharetta, GA

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Tunc Tanin Level 10

The biggest risk with 401k loans is that if you loose your job the next day, you may have to pay back the amount in full sometimes within 30 days. Another issue to consider is that if you die the loan may have to be paid back right away, otherwise it becomes taxable and had you not taken the loan, it would have passed to your spouse tax free. If you are borrowing from your 401k you should have some life insurance in case.

Comment   |  Flag   |  Jul 28, 2014 from Somerville, MA

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Like everyone else, I'd discourage you from borrowing against your 401(k) to buy a house, since doing so will set you behind in your retirement savings. Plus, there's always the risk you'll get laid off, at which point you either need to pay back the entire remaining loan balance or face penalties. I'd also encourage you to think carefully about why you feel this is the right time to buy a house if you don't have the cash for a down payment. You may well be better off waiting a bit to purchase property. Consider taking the money you would use to pay back a 401(k) loan and allocating it to down payment savings. Or, if you have some savings and are trying to get to a 20% down payment so you can avoid PMI, you may want to run the numbers. If now really is the right time to buy, the slightly higher payments that come with a lower down payment may be a less risky option than taking a 401(k) loan. A good financial planner can help you assess all your options and make sound decision that doesn't jeopardize your financial future.

Comment   |  Flag   |  Aug 01, 2014 from Township of Anderson, OH

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