How to save for a home without draining your retirement accounts If a 401(k) withdrawal results in a higher debt-to-income ratio, you may not get approved for the same amount you would have without withdrawing. Since you're basically borrowing money from your 401(k), underwriters view 401(k) loans like they would any other kind of debt, Pirri says. You may not get approved for your mortgage "The government doesn't want people taking funds out early, and they will hit you with a 10% fee for doing so," he says. Pirri says you will also face a tax penalty for withdrawing from your retirement savings early. For example, if you're not of age to tap your retirement account, you'll have to pay taxes on the amount you took out. It may sound appealing to dip into money you've already saved, but you'll probably end up paying more for it later. It's important to remember that when you buy a house, you'll have numerous other monthly expenses, which could impact your ability to pay back the 401(k). Most 401(k) loans are shorter in nature - usually, you will need to pay them back within five years. You might not be able to afford to pay it backĪnother reason not to withdraw early from your 401(k) to fund a home purchase? You may not have the money to pay it back when you need to, Pirri says. Massachusetts-based financial planner Brian Pirri says when you take money out of an account that's meant to grow over time, you're essentially taking yourself out of the market - which means you could lose out on substantial appreciation during a market upswing. One of the main drawbacks with borrowing from your retirement fund is that you could be missing out on making money for your future. Here's why it's not a good idea to take out a 401(k) loan for your down payment: 1. In most cases, borrowing money from long-term investments, like your 401(k), has more drawbacks than benefits. ![]() In fact, experts say borrowing money from your retirement savings is generally a bad idea. ![]() like a house? It can't hurt to just borrow some cash from your 401(k) or your IRA, can it? Retirement savings are for the future, for a day when you're no longer working and need a source of income to pay the bills.īut what if retirement savings are the only savings you have, and you need money now for something big. ![]() By clicking ‘Sign up’, you agree to receive marketing emails from InsiderĪs well as other partner offers and accept our
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