Can I use my 401K as a downpayment on a condo?

Question

I am 43 y.o. and want to use my 401K (in part or whole) as a downpayment on a condo. If I put every penny I withdraw towards the downpayment, will I still have to pay penalties and interest?

Answer 1

You can not make a withdrawal from your 401(k) for home-buying expense without the 10% additional penalty. You would be able to take out a loan on the money, but then you'd be paying payments to that loan plus your new mortgage. The interest rate on the 401(k) loan will more than likely be higher than your mortgage rate.

In addition, you will be missing out on additional tax-deferred growth on the money out on loan.

Bottom line, if you can find other means to pay for your new condo, do it. Retirement plans are good alternatives but should not be the first choice.

Ron, Chartered Financial Consultant

Answer 2

Since you are not 55 yet, you will pay 10% Federal penalty as well as state income tax penalty. You will also pay ordinary income tax.

I would seek advise of financial advisers to be on the safe side. I hope you use the 401k as your last resource.

Good luck.

Answer 3

Yes you can use your 401k plan , but check if there are any penalties. Your home is going to be your retirement nest egg also so invest it wisely.

Answer 4

I know you can borrow from your 401K and use that loan for whatever, however, you will have to pay it back. The interest is very low, tho. It must be paid back, tho.