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Leroy Ross
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Leroy Ross   My Press Releases

How to borrow Money

Published on 4/19/2016
For additional information  Click Here

 

USING RETIREMENT ACCOUNTS

 

 

FOR A MORTGAGE DOWN PAYMENT

 

Q: I am very interested in purchasing a home. Unfortunately, I don’t have the money for a down payment readily available. I have a great job and excellent credit. I’ve also been saving diligently for my retirement.

 

Is there a way to tap into my retirement savings without being excessively penalized for making an early withdrawal?

 

A: First, congratulations on your credit, work situation, and saving for your retirement. It sounds like you’re well ahead of the game.

Yes, there are some options for using your retirement monies to fund your down payment!

The answer lies in borrowing money from your retirement, not withdrawing the money. The government is kind enough to let you pay yourself back.

 

Consider the following options when borrowing money from your retirement funds:

1. Borrow from your 401(k). The rules can change, but you can borrow the lesser of $50,000 or half of your vested balance. So, if you have at least $100,000, you can borrow $50k. Otherwise, you can borrow half.

 Keep in mind this loan from your 401(k) has to be paid back, with interest. The payback period varies between different 401(k) plans.

 If you change jobs, you could be required to pay back the loan right away. However, some plans will allow you to keep making payments, even with a job change.

 If you fail to repay the loan on time, your loan could be reclassified as an early withdrawal. You would then face a 10% penalty in addition to income taxes.

2. Borrow money from an IRA. In this case, you can borrow up to $10,000 without a penalty, provided you are a first-time homebuyer. Married couples can each borrow $10,000 from an IRA.

 In the case of a traditional IRA, you will have to pay income tax on the amount.

 If you have a Roth IRA, there are no taxes, since you already paid taxes on those funds.

 

 If you have money in a retirement account, it’s entirely possible to use those funds towards the purchase of a home. As always, do your research and pull out the calculator to see which solution works the best for you.

 

Leroy Ross

 

 

 

 

 

 

 

 

 

 

 

 

 

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