401K Loan for Down payment

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Irvinecommuter

New member
I am curious to see if anyone had borrow against their 401K for buying a house, more specifically for a down payment.

I know there are drawbacks, especially the immediate payment upon changing jobs. 

Thanks.
 
If you're going to borrow... you might as well borrow from yourself.

I know a few people who have done this and we might do it ourselves (but again... not looking to put a large down into our next home).
 
I'll be the lone wolf here because Suze Orman takes a firm stance against this. I like her articles and her show. To paraphrase other tidbits not shown in these videos, she believes real estate is a good long-term investment but only if you can afford it (affording it means making sure all your bases are covered, btw.). She generally advocates boosting your 401k before making that sort of investment. She also says hope is not a strategy (i.e. hope the investment will appreciate). I've read elsewhere that the double taxation thing is a myth. Whether it is or isn't, I'd still heed her advice.

[youtube]http://www.youtube.com/watch?v=_C8bBbJt_ts[/youtube]

[youtube]http://www.youtube.com/watch?v=DgdcO-Kpm5w[/youtube]
 
SoCal said:
I'll be the loan wolf here because Suze Orman takes a firm stance against this. I like her articles and her show. To paraphrase other tidbits not show in these videos, she believes real estate is a good long-term investment but only if you can afford it (affording it means making sure all your bases are covered, btw.). She generally advocates boosting your 401k before making that sort of investment. She also says hope is not a strategy (i.e. hope the investment will appreciate). I've read elsewhere that the double taxation thing is a myth. Whether it is or isn't, I'd still heed her advice.
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Not a fan of Orman often.  I feel like she has certain tenets that can never be violated regardless of situation. 

There is no tax implication (up to $50,000) as you are not withdrawing the amount, you are just borrowing against it.  The only loss is the lack of appreciation on your 401K.  I am also not taking out the entire amount.  Just a little extra to cover my basis to have some cash on hand that I would have otherwise dumped into the down payment.
 
Husband and I talked about just last night. But I am not looking into a loan against 401k. Still want to buy a property with the money in 401k as 401k investment.. never found people to help me that. Perhaps it's not very common.
 
To answer the original question, we were putting a lot towards the 401k for years so I think we reduced our contribution level, but still kept it at least at the employer-matched level. I don't believe in going below that. Then we saved the difference and incorporated that towards the down, leaving the 401k untouched.
 
Borrowing from your 401k is similar to using your savings so I don't see the difference. You are probably making more on your 401k (well depending on what your spread is) than your savings account and you get both tax benefits and paying yourself an interest rate (sort of like forced savings) if you do borrow against it.
 
My wife and I took out max loans, not because we needed to, but because it maximizes our flexibility.  It's that much less of a drawdown of our bank accounts.  We can use that money for other things if needed/wanted.  I'm not worried about appreciation of my 401k since that money would be sitting in a money market anyway, and probably would be for years.  We took it because it was available, and we have up to 20 years to pay it off.  Compare that to a hardship loan, where you have to jump through hoops to prove a need, and then you get I think 5 years to pay it back, as if that's not a hardship on its own.  If such an emergency pops up now, we're already covered.  We've always been very disciplined financially, and I couldn't find a good reason not to do it.
 
401k payback is a post-tax payback.

We thought about it for awhile but decided against it for the reasons mentioned (lose out on performance, you are effectively not contributing to your 401k and the company does not match a loan payback)
 
LAtoOC said:
you are effectively not contributing to your 401k
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Not sure what you mean by this.  The payback does not count as a contribution, so you're still free to contribute up to IRS limits
 
LAtoOC said:
401k payback is a post-tax payback.

We thought about it for awhile but decided against it for the reasons mentioned (lose out on performance, you are effectively not contributing to your 401k and the company does not match a loan payback)
Click to expand...

and the home buying 401(k) withdrawal is tax free so it all evens out. it really just comes down to where you want your money, in your 401(k) account or your house.
 
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