One question that many prospective homeowners ask is: Should I tap into my IRA to help finance the costs of my new home? While it may seem like a good idea to tackle your immediate financial concerns – including the costs of the house you really want to purchase – you don’t want to get caught “thinking short” when you really need to be thinking long-term.
A 401(k) loan may provide immediate financial relief, but it can be a major burden later on – especially as you try to deal with the added expenses associated with a new home. Keep in mind that you will need to make timely mortgage payments on your home, in addition to other financial obligations you already have, so also being required to pay back the 401(k) loan, with interest, can result in a great deal of stress and pressure.
One problem with withdrawing early from your retirement funds is that you will lose the ability to benefit from compounding interest. This means that even if you pay back the loan drawn from the retirement account, you will still end up with less money, and less security, when you could really use the financial assistance during your Golden Years.
Additionally, if you are over the age of 59 1/2, a withdrawal from your IRA to finance your new house will result in a 10-percent penalty. There is an exception that allows you to withdraw up to $10,000 from your IRA for a qualified home expense without triggering the penalty, but anything over this amount will cost you. Moreover, the IRA withdrawal will require you to pay income taxes, which could hurt come tax time.
For additional information, check out the Yahoo.com article, “Money Minute: Should I Tap My 401(k) to Buy My First Home?”
If you are thinking about buying a home or selling a home in New Jersey, Joel R. Spivack, Esq., is an experienced real estate lawyer who can help you throughout the home buying process. You can contact Mr. Spivack anytime to schedule a free consultation and explore your options.