Using 401k for First-Time Home Buying

A 401k is a retirement savings plan offered to employees of many companies. Most employees choose to use the plan as a retirement fund. However, money can be borrowed from the fund for education and medical expenses, but must be repaid in five years. However if you use the proceeds of the loan for a first-time home purchase, you can repay the loan over 10 years, according to the Wall Street Journal. These 401k loans do not require a credit check and do not have any tax implications as long as the loan is repaid.

Instructions

    • 1

      Call your 401k plan administrator to see if your 401k plan permits loans.

    • 2

      Request a loan of your 401k plan. The amount of the loan cannot exceed $50,000 or half of the balance of your 401k plan, whichever is smaller. Loans can be requested by completing a withdrawal request form or, with some plans, over the phone.

    • 3

      Use the money to purchase your first home. If you need more than five years to repay the loan, submit documentation to your 401k plan to prove you used the loan for your home.

    • 4

      Repay the loan to your 401k plan with at least monthly payments over no more than a 10-year period. Money not repaid will be considered distributed, which will result in additional taxes and potentially early withdrawal penalties, which are steep.

    • 5

      Remember that if you leave the company from whose 401K plan you have taken a loan, you will be required to pay back the whole loan in full when leaving your job.

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References

  • Photo Credit Pennies on the Dollar - one dollar bill with pennies. image by Andy Dean from Fotolia.com

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