Related Posts
Hi fishes, I have only 4 days left in notice period. Please guide me which one to join in terms of WLB, Job Security, Long term stay. Year of experience 10 years
1. Schneider electric
2. Harman international
3. Nagarro
4. Fidelity National financial
Harman Schneider Electric Nagarro Fidelity national financial india
Additional Posts in Personal Finance Bowl
Google stock to buy now or after the split?
Anyone have a recommended tax person in Chicago?
Thoughts on personal loans to consolidate Debt?
New to Fishbowl?
Download the Fishbowl app to
unlock all discussions on Fishbowl.
unlock all discussions on Fishbowl.
Financial coach needs to retire from finance. It’s a loan. Only reason not to take it is bc 1) you miss out on any gains (also losses) before you pay back and 2) you have to pay back fairly quickly if you change or lose job or else it’s a distribution.
Thank you! And good call out on the losing a job piece - I didn't know that, but it makes sense. I just don't want to get stuck waiting for my house to sell if the right opportunity comes up - things are still super competitive here.
Well the 401k loan is supposed to be a temporary solution and as others have mentioned, you have to be fairly confident in the ability to pay it back quick or the security of your jobs, because otherwise it starts costing a lot more than intended due to taxation and distribution rules. If you can swiftly move with buying the new home and paying the 401k loan back, then it’s definitely an option. It’s kind of like a bridge loan, but the interest and tax burden may be lower than the interest and terms of a bridge loan. It is a weird market for homes though and it’s unknown how much home values will rise or fall right now, but each market is different. A nightmare scenario would be buying a home at a high cost and then being unable to get any equity out of it because the prices drop. It’s a bit of a murky home value market.
The only other option I can think of is selling the current home and having the cash in a high yield savings account ready to go, while either staying over with family or renting a month to month place until you buy the new home. If the costs for the move/storage/monthly rent end up being lower than a 401k loan interest, it may still be worth it. Some home sale contracts can also have a negotiated grace period for the current owner to move out their stuff or pay a per diem fee for the extra days they stay, so that can give you a bit of extra time until you buy the new home. But definitely a less comfortable option than just signing a 401k loan and paying it off quickly. The main downside with the loan route is the risk of home value volatility. Hope it works out the best way possible for you, and it’s great that you are exploring all the options ahead of time!
I did this when I bought the house I am now in. 401k is great to draw on an extra 50 or 100k but the only reason I felt comfortable about this is that I knew in a super worst case scenario (lost my job and had to pay back immediately) I had a plan F which was to go to my immediate family who I know this would not be an issue to lend me but also I would never want to ask. Given job market conditions now to each his own but for me at least with the whole who knows if I will have a job next year I wouldn’t do it (or even contemplate buying now) but that’s just because of my situation. If you are comfy where you are at and are not at risk for layoff I’d say go for it !!!
Yeah I don’t think Deloitte is a secure place atm, so tread carefully imo!
We did this in 2018 for same reason you say (a bridge loan). As soon as we were funded from our sale we paid off the 401k loan. I think we paid $500 interest across a couple months.
I believe you will be paying a 10% tax on top of your regular income tax rate. This is a common thing that people do that ends up hurting them later. It is never suggested to take from your retirement for things like this.
If you do not have the down payment in cash, that might be an indicator you are getting into more home than you and your family can afford. Too many times I have seen people say they can “afford the payment” but what happens when the water heater goes out next month? You will have used all of your savings for a down payment then resort back to loans for the water heater. It’s a never ending cycle.
There's no fee or taxes witheld to doing the loan since it's borrowing against my 401k. But I do have to make interest payments (prime + 1%) but those are also straight to my 401k i think. It does count as a distribution if I don't pay it back though, so taxes+fee. But I intend to pay it right back with some of the proceeds. I should be in the 200-300 range in equity.
I have done this 4 times in a 15 year cycle. Though not always for down payment on a home. The advantage is you dont need to go any credit checks and it doesn’t impact your credit score. And also the interest you pay directly goes to your 401k balance. Basically you are lending your own money to yourself. The disadvantages are that you will lose any growth higher than the interest rate. And then you need to have the buffer to pay the installment in every paycheck as these are short term loans. As other mentioned you need to close this loan if you quit or lose job. Another note to consider if you take a 50k loan, you cant take another loan for next 12 months. The max 401k loan amount in a 12 month period is 50k.
For me when I took the loan from vanguard it was automatic. Basically (terms may vary based on your 401k) I think there was like a 5 year limit to repay it all so it divided the total amongst 5 years. Like others on this thread have recommended I repaid as soon as I could after closing, about 5-6 months after, which was good because I think that year the return was like 18-20 percent, as opposed to the 4 that I would have paid myself back…. That and I was paranoid about losing my job and having a random 50k to return given I deleted everything to buy the house.