Should I Use My 401K to Buy a Home In Connecticut
Should I Use My 401k to Buy a Home In Connecticut
Buying a home can be a financial stretch. With soaring home values and rising interest rates, many potential first time home buyers find saving for a down payment increasingly difficult. For many people, the main source of savings is in the form of a 401k and tapping into this resource for a home purchase is one way to find the down payment necessary to finance a new home; but should you use your 401k to buy a home? Experts are conflicted.
A 401k is a retirement savings plan offered by employers which takes pre-tax earnings and deposits it into an investment account for use in retirement. The money in a 401k account can be accessed by either taking out a loan against the balance or by a straight withdrawl. A withdrawl before the age of 59.5 is also subject to a 10% penalty.
Taking out a loan from a 401k account may be viable option for potential home buyers. For one thing, a loan from your 401k should not count against your borrowing from yourself. The amount you can borrow is limited for example 50% of the balance and typically must be repaid within 5 years. The other option is a simple withdrawl; the 10% penalty is incurred but the value is not usually limited.
Saving for a down payment can be challenging. Using your 401k to help may be a great option. Speak with your financial advisor and see if this is the right financial move for you.