Buying a Home With the Help of Your 401(k)and IRA
Alexandria, VA /Xpress Press/ -- One of the most difficult steps towards buying real estate is coming up with the down payment. Yet many would have the down payment if they could access their 401(k)s, IRAs, and other qualified retirement plans. The problem is that few people know how to tap their retirement savings in ways that won't trigger stiff tax consequences.
On average, Americans have about $3,400 of personal savings in the bank. However, this figure pales to the more than $40,000 on average they have in their 401(k) or the more than $30,000 they have on average in an IRA, according to year end 2000 figures by the ABA Retail Banking Survey, Employee Benefit Research Institute (EBRI), and the Investment Company Institute (ICI).
"I think there's a general misconception among the public that if you dip into your retirement accounts you'll be hit with all kinds of taxes and penalties," said Daniel Lamaute, chairman and chief executive officer of Lamaute Capital, Inc. "But that's not necessarily the case."
Lamaute Capital recently added on www.investsafe.com vital information about how first-time homebuyers and others can use their retirement money for home buying - and avoid taxes or penalties.
One of the most flexible options involves using an Individual-401(k) loan available to small-business owners or the self-employed. It allows a couple to jointly borrow up to $100,000 of their retirement money (or 50 percent, whichever is less) tax-free and penalty-free, as long as the money is paid back. You can use the loan for home buying, home improvement, home decorating, anything. If you use the money to buy a primary residence, the loan term can be extended from the normal 5 years to 10 years.
Another little-know financing option allows you to tap your IRA without penalty to help a family member buy a first home. In this case, the maximum that you can withdraw without penalty is $10,000 and it must be your first time using the homebuyer exclusion.