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I'm not sure I understand. It's quite easy to take money out of your 401k without penalty for a first time home buyer. How could it be easier than just reques

I'm not sure I understand. It's quite easy to take money out of your 401k without penalty for a first time home buyer. How could it be easier than just requesting the money?

ethbr0 4y ago
Loans are subject to plan administrators allowing it, and withdrawals are subject to taxes and penalties, unless one qualifies for a hardship exception which is nebulously defined and at IRS discretion for home purchases, no?
- frumper 4y ago
  Withdrawals are subject to taxes which is fair because you haven't paid taxes on it yet. While there may be some wiggle room for 401k administrators or the IRS, generally if you don't have other resources for a down payment on a house then you won't see any penalties for the withdrawal. The 401k loan will depend on your plan, but the terms are defined by your general plan, not something that the administrator will deny because you have poor credit. That said, both of those generally sound like poor choices, but if you truly need it they are options(if your company allows loans). Saving for retirement is really meant to help you in retirement.
  - ethbr0 4y ago
    We allow people to save for college in tax advantaged plans. Why not houses? And if so, why not use a vehicle that already exists (401k/IRA) instead of creating a whole new one? The conventional wisdom that borrowing from your 401k to buy a house is always a poor move seems... overly reductive and a bit patronizing. If someone isn't able to fund their 401k and save for a down payment, who am I to tell them that using a tax advantaged vehicle is a bad way to become a homeowner? Mortgage rates, local rental prices, local home prices and inventory, living situation and likelihood of moving, tax situation, etc. all impact, and I don't know anyone's situation. Besides, who wants all the money in the world if you have to spend most of your life living in a place you hate?
    - frumper 4y ago
      I mean, I'd love to save for a home with a tax advantaged account. That sounds so good that if I ever planned on moving I'd want to max out my contributions to that, sell my house, take the money I earn from that house and dump it in my Roth 401k since I won't pay taxes on most of the capital gains, then take the distribution from the home savings account and put it towards the next down payment on a house and avoid taxes there too. As for why we don't allow you to do that from a 401k, for the same reason we have separate accounts for the education savings. 401k is designed to incentive retirement, not education or housing. Society could decide to make 401k's more broad, but I suspect that would just lead to the more well off people being able to better use them as tax shelters. Mortgages are already subsidized in other ways, including government down payment assistance, or low down payment requirements for loans.

I'm not sure I understand. It's quite easy to take money out of your 401k without penalty for a first time home buyer. How could it be easier than just requesting the money?

ethbr0 4y ago

Loans are subject to plan administrators allowing it, and withdrawals are subject to taxes and penalties, unless one qualifies for a hardship exception which is nebulously defined and at IRS discretion for home purchases, no?

frumper 4y ago
Withdrawals are subject to taxes which is fair because you haven't paid taxes on it yet. While there may be some wiggle room for 401k administrators or the IRS, generally if you don't have other resources for a down payment on a house then you won't see any penalties for the withdrawal. The 401k loan will depend on your plan, but the terms are defined by your general plan, not something that the administrator will deny because you have poor credit. That said, both of those generally sound like poor choices, but if you truly need it they are options(if your company allows loans). Saving for retirement is really meant to help you in retirement.
- ethbr0 4y ago
  We allow people to save for college in tax advantaged plans. Why not houses? And if so, why not use a vehicle that already exists (401k/IRA) instead of creating a whole new one? The conventional wisdom that borrowing from your 401k to buy a house is always a poor move seems... overly reductive and a bit patronizing. If someone isn't able to fund their 401k and save for a down payment, who am I to tell them that using a tax advantaged vehicle is a bad way to become a homeowner? Mortgage rates, local rental prices, local home prices and inventory, living situation and likelihood of moving, tax situation, etc. all impact, and I don't know anyone's situation. Besides, who wants all the money in the world if you have to spend most of your life living in a place you hate?
  - frumper 4y ago
    I mean, I'd love to save for a home with a tax advantaged account. That sounds so good that if I ever planned on moving I'd want to max out my contributions to that, sell my house, take the money I earn from that house and dump it in my Roth 401k since I won't pay taxes on most of the capital gains, then take the distribution from the home savings account and put it towards the next down payment on a house and avoid taxes there too. As for why we don't allow you to do that from a 401k, for the same reason we have separate accounts for the education savings. 401k is designed to incentive retirement, not education or housing. Society could decide to make 401k's more broad, but I suspect that would just lead to the more well off people being able to better use them as tax shelters. Mortgages are already subsidized in other ways, including government down payment assistance, or low down payment requirements for loans.