Are you an Early Retiree who’s ready to move?
Should I take Money Out of My 401(k) To Purchase a New Home?
In almost all cases, drawing from your retirement, or 401(k), account is not a good idea. Saving money through a 401(k) provides opportunities for tax breaks and employer contributions, but requires discipline to avoid the heavy penalties associated with withdrawing money early – even for investment purposes, like purchasing a new home.
If you use money from your 401(k) account before you turn 59.5, the government requires you pay a ten percent (10%) penalty for early withdrawal, in addition to income taxes, on the amount you pull. An example of the weight of these penalties can be seen using a couple in the 25 percent tax bracket who want to withdraw $10,000 early to help pay for closing costs. This couple will have to pay $3,500 in penalties and taxes to withdrawal this money. This can create a problem for early retirees who want to move into a home closer to family and friends or into the ‘forever property’ they have spent years dreaming about, but have not hit the age threshold for withdrawing from retirement savings.
Early Retirees Waiting to Turn 59 ½
For individuals looking to purchase a move-up property, but are not yet 59 ½ and do not want to face the penalties associated with tapping into retirement accounts, a bridge loan may be a good way to finance the purchase of your new home. This option can help early retirees who are two years or less from qualifying for withdrawals to move while their dream home is still on the market or when moving closer to family, medical care, or assistance cannot wait for retirement. In this case, an early retiree would use a short-term Bridge Loan for the period before they qualify for withdrawals and pay off the bridge loan after the penalty-period has passed – effectively saving the difference between the 10% early withdrawal penalty and the cost of the Bridge Loan.
Moving Before Your Current Home Sells
Life often works out of order and sometimes moving is necessary for medical or family reasons that cannot wait on the sale and closing process of your current home. Hurst Lending created the Retired Mortgage Dominate Loan program to let you use the home equity in your current home to move where you need to be – regardless of a fixed income. This option creates a new, 1st lien bridge loan on a new home in the right location that is paid off when your old home sells. Using the “credit” you built in the form of your current home’s equity to secure a bridge loan allows you to forgo pulling money out of your retirement accounts and paying the income taxes associated with a withdrawal.
To talk with a Bridge Loan expert about your unique circumstances and understand what is the best next step for you, contact us now or call (877) 405-3465.