401K Cash Out?

Question

Should I cash out my 401K for a downpayment on a house? I figure it would come out to be about $13,000.00. I'm 39 and figure we could recover.

Answer 1

NO, leave your 401K intact. Get the money from somewhere else. Do NOT touch your 401K.

Answer 2

Like everyone else, I would recommend that you do not withdraw money from your 401(k) account.  This is one of the few methods the average person has to accumulate significant savings over time, using tax advantages and the power of compound interest.  If you withdraw money, the taxes and penalties can consume nearly have of the hardship or other withdrawal (depending on your tax bracket and the state you live in).  But if you are committed to buying a house, consider a 401(k) loan, which could be for as much as half of your account.  Since you will pay it back unless you change jobs, this is one step better than a withdrawal.  

Buying a house is another way to accumulate significant savings over time, and offers major tax savings also, so you should try to do this.  Just not at the expense of your 401(k).

Answer 3

I agree it is a bad choice.  Taxes plus penalty will leave you with about $9,750 if you are in the 15% tax bracket.  If you are taking the money out of your 401k you can afford the house.  Buckle down and cut your budget to the bone.  Cut out all wasteful spending and pay off all outstanding credit. Then save as much as you can.  Wait till you have 20% down payment to buy house.  House rich and cash poor is a bad place to be.  I have been there.

Also trying to catch up on the 401k money never works.  Been there too. Still trying to catch up.

Answer 4

Poor choice, since you will be required to pay income tax on that withdrawal, plus a ten percent penalty on the total withdrawal for not waiting until retirement age.

Answer 5

Don't listen to the logic that a 401K is untouchable till you are 60.  Forget it.  It's an investment like anything else.

So, look at the numbers.  It will cost you 10% in fees plus taxes.  you need to calculate what it will cost you in added taxes.  

But go into this with eyes wide open.  You need to make your mortgage payment for a long time.  Make sure it's within your means.  

Your home can be a great retirement vehicle.  As it appreciates in value tax free just like your 401K.