Buying Your

Katy-Cinco-Ranch-Richmond Area Home

For The Best

Price!

Chapter 11  How To Find Down Payment And Closing Money Part 3

Fred, Miller, Realtor serving Katy, Cinco Ranch, Pecan Grove, Richmond, Westpark Tollway, Fulshear. www.RichmondKatyHomes.com

 

Tap into Your 401(k) or 403(b)

You can access your 401(k) also, either by borrowing against it or withdrawing cash. Each option should be weighted carefully before making a decision--this is your retirement money after all. Most experts agree, however, that if you are taking money out for a home purchase, tapping into your 401(k) or 403(b) can be a good choice. About 75% of companies with 401(k) or 403(b)s let you borrow against the money in their plans. You can usually access up to 50% of your vested balance or $50,000 whichever is less, and the interest rate is often lower than what banks are charging for loans. Most plans require that the money be paid back within 5 years, but in the case of a home purchase that may be extended anywhere from 10 to 30 years.

The best thing about borrowing from a 401(k) or 403(b)--you're borrowing the money from yourself and the interest you pay goes back into your account. It is also a inexpensive and convenient way to come up with a down payment. The downside? If you leave your company without repaying the loan the amount of the unpaid balance becomes a distribution and not a loan. That means that you'll owe income tax plus a 10% penalty.

You can also withdraw money from your 401(k) or 403(b). This route is only recommended if your company doesn't permit loans and you have no other sources you can tap. The IRS permits hardship withdrawals to buy a home, but you'll owe tax on the amount you take out, plus the 10% penalty.

Pulling Money Out of an IRA or Keogh

Taking money out of your IRA or Keogh account should be a last resort. Like a 401(k) or 403(b), if you take money out of an IRA or Keogh before age 59, you will owe regular income taxes plus a 10% tax penalty (For an early withdrawal on a non-deductible IRA, only the earnings are subject to taxes and penalties)

You can avoid the penalty (but not the taxes) if you became permanently disabled and have a doctor's letter stating that your condition will last at least 12 months. Another option is to take the money out and pay it back within 60 days. You won't incur penalties or taxes. In addition, the IRS lets you remove funds at any age--penalty free if the withdrawal is part of a series or substantially equal distributions for at least 5 years or until you are 59 1/2 , which ever is longer.

Next Chapter: How much can I afford to pay each month?

Fred Miller, Re/Max Plantation, fredmiller9@gmail.com , www.RichmondKatyHomes.com Office receptionist: 281-342-2288 Cell 281/924-2531