Should I cancel my 401k contribution to afford bigger home?

Question

I'm currently investing about $400 per month into my 401k. I could really use that money for bigger home mortgage. Would it be a bad idea to cancel my savings so that I can afford a nicer place?

Thanks

Answer 1

that really depends on if you think that the appreciation on the house will be higher than the appreciation in your 401k. History says it won't be....

Now, if you think history has changed and you'll earn more....and you're right. You'll have a house that you have paid off, that's worth a lot of money and that you have to sell to reap the benefits of it. You'll also be hoping that tax law remains the same and you'll get to exclude the gains from the sale. Could be very lucrative switch even though you'll have to sell and buy down on your house.

But, if you're wrong...you'll have to sell anyways though at a much lower gain then you'd hoped. And again, if tax law changes you could get taxed at that years capital gains rate (banking on capital gains remaining lower than regular income rates are we?).

Now...if you leave the money in the 401k and live in a somewhat lessor home...you'll still have a good source of income AND you won't have to sell your home to get it. Ideally the home will be paid off so you won't have THAT expense. Yes, you may have to pay taxes on the distributions from your 401k but you can manage your tax bill there.

Given the flexibility that the 401k provides, the history of better performance, the ability to take the distribution in pieces, and the fact that you will still own a home in which to live tells me that it's not a good idea.

The only time I advocate reducing your 401k is if it's your only option in terms of paying off debt. Never to purchase something new. And only to pay off something old if you have no other means of doing so and bankruptcy is in your future.

Answer 2

meh, probably not. How much does your employer MATCH your 401k contribution?
If your employer matches you, you need to be maxing that account out. Otherwise, it's like your throwing away free money.

Why do you need a bigger house? If it's for increasing family size or whatever, I'm semi-sympathetic, but if it's just cuz you want a sexier house, I'm veto-ing the idea.
Think very seriously about what it is that you really NEED, and what it is that you just WANT.
I strongly recommend you read "Luxury Fever" by Robert Frank before you decide.
Saving money is important, and yes, investing your money in your house isn't a bad idea, but maxing out your 401k really is one of the first things you should be doing w/ your money.
Your house doesn't match your investment contribution, but odds are you employer does w/ ur retirement account.

Answer 3

Here is the real question.

Would you borrow against your home to finance a 401k? Probably not.

How much debt do you have? How much will you incur?

If you are contributing 10% to the 401k and have a three month emegency fund in the bank and no other debt. This might be a good idea.

Answer 4

i watch Suze Orman all the time, and one thing she said that i live by is putting as much into a 401k as your employer will match, and any extra you would have. i think its a bad idea, what if you lose your job? then you wouldnt have as much in the 401k to fall back on, as well as a huge mortgage to have to try and handle.

Answer 5

Never cancel your 401k. That is one of the worst ideas.

Answer 6

If your employer is matching some % of your contribution, it would be a very bad idea since you would be declining to accept free money.

Answer 7

Don't cancel your 401(k)! That's only $4800 a year, and it won't make a difference for a house, but you'll reap a LOT if you keep investing it for retirement.

Answer 8

No, don't do it. That nice house won't do you any good when you are old and can't afford the heat and electricty for it.

Answer 9

yes that would be a bad idea,