Use Retirement Funds to Buy a House

Did you know you can use retirement funds to buy a house?  Whether it’s a good idea is certainly debatable and it depends upon a buyer’s particular situation, but let me explain the basics.  If you have a traditional 401(k), you can borrow up to $50,000 without paying taxes or penalties.  You’ll pay back the principal and interest to your 401(k) under rules set by your plan administrator.  You can also simply withdraw the funds, but you’ll pay a 10% penalty plus all the regular income taxes.  Now if you have a Roth 401(k), you can withdraw your contributions without taxes or penalties, but withdrawing earnings will be taxable.  In addition, an IRA offers another option to first-time homebuyers  as you can withdraw up to $10,000 with no 10% penalty for a first-time home purchase.  There are a variety of negative aspects, the main one being that the retirement funds are no longer able to provide investment returns.

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