Withdrawing retirement funds for downpayment

[stellarose]

Thoughts on this please:
(long and I know this isn't an ideal thing to do, but weighing it all out right now)

I have between 15-20k in an former 401k. I haven't been able to contribute for two years due to personal reasons and also due to contracting. In the two years the plan is at the same balance I left the former company with.

Currently this is all I have for retirement, I do have personal stocks and some other accounts that I am not able to withdraw from. My new position (I took the job I was offered and previously posted about...less money than I was anticipating, but still a good secure job with lots of growth room) I get a 100% match on the first 5% which I am contributing 10%, overall 15% with match.

I do understand the compound growth potential of rolling my 401k over, but since it is a smaller amount I am wondering/contemplating the pros and cons against rolling it into an IRA and then withdrawing to put towards a home purchase. We already have 20%, considering the tax loss by withdrawing, we could add another 20%. It is a short sale condo, so very low purchase price. I feel very comfortable with purchasing as its a very nice community and I don't foresee the prices dipping too much lower since they are so low now. Plus it's a good area to rent for later when we are ready to move on to a house.

By putting 40% down it would make things very comfortable for us giving us extra room to save and invest...not gobs of money but enough to put some away, even with dh in school and unable to work part of the year. I am 29 he is 30. He has no retirement savings and 2 years of school left. So I would be restarting my 401k and once he graduated he would fully fund his 401k (high employment rate out of school) and we could fully fund Roths at that point too.

What's your opinion? I haven't run the numbers I was just contemplating since my balance is on the low side would it be more helpful/beneficial to switch things around right now? If we rented eventually we could get about 500-600 profit out of the condo a month when rented. Compared to what the condos are renting for now and factoring in taxes, insurance and Hoa we would save 300-400 a month by buying.

[stellarose]

It would take me 1.5 years of new contributions to replace what I would be withdrawing. I haven't run numbers against all of this because that part I don't know how to calculate or a good place to go to figure it out.

[aurora]

I would not because of the tax implications (in addition to the compounding interest, especially at your ages).

I think a lot of peoples' retirement accounts haven't gone up that much in the past couple of years, but that doesn't mean they won't in the next 2 years (or however long it will take you to put that money back in).

ETA - we cross-posted so I didn't see the 1.5 year payback time, but that doesn't change my answer.

[Deleted]

Roll it over. It's not worth it if you already have 20% down. If you can't comfortably save and invest while paying the mortgage with only 20% down as opposed to 40% than you are buying above your means.

[SJ]

Don't do this.

Roll it over into an IRA and leave it alone. It's not worth the penalties and taxes.

I am confused by those who say the stock market hasn't done much lately. THIS YEAR ALONE, through last Friday, the S&P was up 11.85%, the Dow Jones 7.15%, and the Nasdaq 17.78%. Those rates are way higher than any savings account or mortgage.

[Deleted]

Sept 7, 2012 13:34:08 GMT -5 SJ said:

Don't do this.

I am confused by those who say the stock market hasn't done much lately. THIS YEAR ALONE, through last Friday, the S&P was up 11.85%, the Dow Jones 7.15%, and the Nasdaq 17.78%. Those rates are way higher than any savings account or mortgage.

wth...I totally missed that. Just this month alone, I have had over 5-10% return. ;D

[aurora]

Sept 7, 2012 13:34:08 GMT -5 SJ said:

Don't do this.

Roll it over into an IRA and leave it alone. It's not worth the penalties and taxes.

I am confused by those who say the stock market hasn't done much lately. THIS YEAR ALONE, through last Friday, the S&P was up 11.85%, the Dow Jones 7.15%, and the Nasdaq 17.78%. Those rates are way higher than any savings account or mortgage.

Are you referring to me? It all depends on the individual investments available in your retirement account. Some of my investments have done very well, and others haven't. The point I was really trying to make is that you can't say just because your account balance has been static for the last 2 years that you should give up on it (withdraw it to put down more on the house) - it could go up a lot in the next 1.5 years while replenishing, and then you'd have missed out.

[SJ]

Not specifically referring to you aurora. I completely agree with you that the money shouldn't be withdrawn.

I just think people are too short-sighted about market returns and need to trust in the long-term nature of retirement accounts. Especially when the option is paying taxes and penalties just to put more down towards a (presumably) low interest rate mortgage.

[curbsideprophet]

I would not take money out of retirement to put down 40%. I would roll over the old 401k and put down 20%.

[stellarose]

Oh I'm definitely not saying its been static therefore I'm withdrawing. I've been impressed to with a two year hiatus it has returned to when I left the company.

As with the early withdraw penalty there isn't one if you are a first time home buyer withdrawing from and IRA less than 10k.

I assumed this is what the answer would be but wanted some thoughts anyways since there are different ways of doing things. Not sure what tax bracket I am in for sure, but would've wanted to figure that out incase the withdraw would push me over to the next bracket.

I wouldn't say we are buying outside of our means, you really can't get much lower. It's much cheaper than renting anywhere else. I just won't have as much to save in the coming months only because DH can't work at all. In the spring he will work 6 months full time, 6 months off, 6 months full time and then graduation.

[stellarose]

Thanks ladies!!

[lys]

Don't do it!!! Just don't.

[aurora]

Sept 7, 2012 13:42:47 GMT -5 SJ said:

Not specifically referring to you aurora. I completely agree with you that the money shouldn't be withdrawn.

I just think people are too short-sighted about market returns and need to trust in the long-term nature of retirement accounts. Especially when the option is paying taxes and penalties just to put more down towards a (presumably) low interest rate mortgage.

Thanks for clarifying - I do (rationally) agree about long-term nature of the market, though I also get how it can be emotionally difficult sometimes.