If I Was Going To Use A 401k To Buy A Home... Episode 216

If I Was Going To Use A 401k To Buy A Home...

...I would start by learning how much tax would be owed when I take the $$$ out

and I would definitely contact your 401k plan admin team for more info

I always find it interesting when home buyers tell me

that they are going to use their 401k to buy a home

It's not that I think that its a bad idea

as it can make a lot of sense in the right situation

but rather that they have no clue that they will have taxes dues

when they take the $$$ out

quite often, its a clear case of amnesia 

when they put $$$ into their 401k

it went in before taxes were paid on those earnings

check your paystubs if your don't believe me

the taxes due are deferred until the $$$ is taken out

and when a large sum of $$$ is taken out

a shocking amount of $$$ can be due at tax time

lets suppose that your are in the 15% tax bracket

and you want to take out $100,000 to buy a home

$15,000 in tax is due

and if the home that you want is $300,000

then $45,000 is due if you take out the full amount

if you are a high wage earner in a tax bracket above 30%

then you are looking at a tax bill of about 100k

that would cause most people some discomfort

most 401k plans have a way to take a loan out against your 401k

and that can be used for the down payment on a home

and a mortgage could be used for the remainder of the $$$ needed

that is a strategy that works for many people

today's podcast unlocks more tips on what goes into tapping into your 401k