You might initially think your 401(k) will easily pay the balance and leave you ,000 to restart your retirement.
But, thanks to taxes and fees, it will take all of your retirement savings as well as some cash out of your pocket to pay off your home. But you’re probably also over age 40 with zero retirement savings.
Listeners call into Dave’s radio show all the time to ask if they should cash out their 401(k)s to pay off their credit cards or even their homes.
To see why cashing out a 401(k) isn’t worth it, let’s take a look at how it could play out in a real-life scenario.
And yet, while my wife and I are adding deck chairs and hanging bookshelves, we're not exactly planting roots.
This house is just a rental, not a property we own.
The IRS code will allow hardship withdrawals for the above mentioned reasons only if you have no other funds or means to fulfill the need, and the withdrawal would be enough to satisfy the need (but not more than what you need).
You can however, include the cost of withdrawal (penalties and taxes) in the amount you need. Debt collectors calling you every hour on the hour.That's up from 2% in the prior year, and was the highest level in 10 years. Sometimes the withdraw rules can be confusing, so it's important to know when you are allowed to pull money from your 401k because of hardship.Coming up with the downpayment is one of the biggest financial hurdles anybody can overcome.Furthermore, nobody wants to remain in a rental if they know they plan to live in an area for an extended period of time e.g. I’ll share with you my framework on how to figure out whether to invest or save for a downpayment.The IRS considers the following list of items acceptable reasons for withdrawing money from your 401k under the hardship withdrawal.