Closing a retirement account...

MrsDe2008 · May 2012

to buy a home. Has anyone done this?

DH and I are in the beginning stages of purchasing our second home. We took a loss on the 1st house we bought (back in 2007...sold in 2010) and walked away with nothing. Well, we now want to purchase another house (we rent right now), but we really can't afford to save up for another house like we did for the 1st one (we both lived at home rent free until we got married). So, it looks like our only option is to close out DH's retirement account, along with a few other accounts we have, so we can afford a decent down payment. We will have money left over for an e-fund.

=Jewel= · May 2012

No no no no no, x1000.

Don't ever cash out retirement for a house (or anything, short of life-saving medical treatment). There are ways to save up for a downpayment. It may take more time and effort, but it can be done - move to a place with cheaper rent, cut back on extras, take on side jobs as you can, etc.

TarHeels&Rebels · May 2012

Here's a post and you can also go over to MM and ask there. The general consensus is not to.

lil_jen051708 · May 2012

MrsDe2008:
So, it looks like our only option is to close out DH's retirement account, along with a few other accounts we have, so we can afford a decent down payment. We will have money left over for an e-fund.

Sorry but I wouldn't do this at all. This is your H's retirement. I wouldn't wipe it out for a downpayment - that will come with tax consequences (so you wouldn't get all your money) and a loss of compounding interest and growth right now. You said its your only option but there are others- continue to rent, get another job to save up, make budget cuts, or move back in with your parents.

msmerymac · May 2012

No, your other option is to rent. Rent a bigger/different place, even, if you want.

Most people will have trouble retiring even when maxing out 401ks and IRAs. There's no good reason to raid a retirement fund, unless you or your spouse are literally dying and need the money for medical bills.

MrsDe2008 · May 2012

Believe me, we don't want to do this, but we don't have many options. Living with either of our parents is not an option. Getting a smaller place is definitely out...we are already in tight quarters. Our mortgage, taxes etc. would be less than what we pay in rent now. We definitely won't have a big enough down payment for many many years. I really don't see how else we can afford a house. Would you rather rent an apartment than have a home? I understand you have to save for the future, but don't we need to live now?

MrsDe2008 · May 2012

Now that I have been reading some info online, maybe we will just do a loan against the 401k for the downpayment. I will look further into it and see if it works for us.

MisfitMe · May 2012

You are living now, is the point. Rent a cheaper place for awhile, cut back extras, work overtime, sell your crap you aren't using, little stuff adds up. There are options out there for no down payment loans though, if you can't get out of the instant gratification mindset

=Jewel= · May 2012

MrsDe2008:
Believe me, we don't want to do this, but we don't have many options. Living with either of our parents is not an option. Getting a smaller place is definitely out...we are already in tight quarters. Our mortgage, taxes etc. would be less than what we pay in rent now. We definitely won't have a big enough down payment for many many years. I really don't see how else we can afford a house. Would you rather rent an apartment than have a home? I understand you have to save for the future, but don't we need to live now?

Yes, I would live in a small house or apartment before touching retirement money. Many people spend years saving for their downpayment. It's not unusual at all.

If you don't have any extra money to save now, what will you do when unexpected costs come up on the house? How would you pay for a new roof, new HVAC system, etc.? We've put $15-$20k into our 10 year old house since purchasing 2 years ago.

How about looking into an FHA loan? You only need 3.5% down. You can get a conventional loan with less than 20% down as well. Is there a chance you could save enough for either?

atlcatlover · May 2012

Ditto pps. There is no way you should be cashing in or borrowing against your retirement. As it was pointed out, what will you do when things break, like a water heater or roof? And while it may seem that your mortgage payment is less than rent, if you've owned before then you know about all the extra costs that come with owning a home. Don't do this.

MrsDe2008 · May 2012

kaylie622:

We took withdrew $10k from one of our IRAs to buy our house, but we felt very comfortable with what we still had in that account and other accounts (H is a retirement savings hawk). There was a lot of analysis that went into deciding if it was the right move, and our tax bracket had a lot to do with it. We could have bought the house without that money, but we wanted to put more down and avoid PMI.

Do you have a financial advisor you could sit down with? I don't think you can get sound advice on a message board without presenting tons of important info, and a lot of it is pretty personal. You can't count on social security and even if you do get it, it won't be enough. A professional would be able to tell you approximately what amount you'd be looking at down the road with and without the retirement money.

ETA - in a perfect world, you should never touch retirement money. I'm not sure what part of NY you're in, but in our part of the northeast the cost of living makes it VERY hard to save up for a house, so I can understand what you mean when you say you can't cut back any further. You do need to take the future into account, though.

Thank you. I plan on talking to my financial advisor today and seeing what he says. I'm pretty sure we wouldn't be the only ones in the world to ever touch our retirement accounts for a home. One accountant I spoke with said people do it all the time. We live in NYC (very HCOL), so it is practically impossible to save.

Like you said, there are a lot of factors that go into deciding whether taking money out of the retirement account is right or not. DH actually lost his job last year and started with a whole new work place...he has over 24 years before he can retire and will be contributing to his 401k during that time. All the money he has in his retirement is from his previous employers...so, it's essentially like he is starting over. Think of it as a 20something year old just starting out in the work force with nothing in retirement. It is not like he is close to retiring and wanting to wipe it out.

We will definitely be talking to our FA and see what he says. Thanks again.

annieu613 · May 2012

I would definitely rather rent than lose my 401k!

You don't NEED to buy a house, you WANT to buy a house. Save for a downpayment and then you can buy.

MNVegas · May 2012

I agree with others that taking money from retirement account is a very bad idea. Just because a lot of people do it does not make it a sound financial decision. A lot of people used their homes as ATMs and look how that turned out.

If you can't save money for a down payment, how are you going to save money to replenish your retirement account? There are a lot of expenses that go along with home ownership in addition to just paying a mortgage.

tbridetobe · May 2012

MrsDe2008:
[DH actually lost his job last year and started with a whole new work place...he has over 24 years before he can retire and will be contributing to his 401k during that time. All the money he has in his retirement is from his previous employers...so, it's essentially like he is starting over. Think of it as a 20something year old just starting out in the work force with nothing in retirement. It is not like he is close to retiring and wanting to wipe it out.

Except your DH isn't a 20-something just starting out with nothing in retirement. He is an adult with work experience, retirement savings, and a child who will only keep getting more expensive. Plus, it doesn't sound like his industry is very stable if he lost his job just last year. What would you do if he lost his job again? You might not even be able to get a mortgage without a couple years of steady employment.

I rarely jump into financial discussions on this board because I am a lot less conservative than most posters here, but seriously, even I know this is a bad idea. If you wanted a house so badly, why did you sell your first one? You had to know then that you were going to have to rent for awhile. You need to cut back and make some sacrifices, not demand that your husband empty out his retirement accounts to provide you with immediate gratification.

hocus · May 2012

And what will you use to retire on?

You can save, it will just take time. Continue to rent and consider renting something smaller and buy in a few years.

Nechie122 · May 2012

Homeownership used to be seen as a pretty sound investment. But as you've seen firsthand, it can also be a financial sinkhole. Why did you sell your first house within three years and what makes you think that you won't lose DH's entire retirement savings again if you have to sell this house in the near to mid-term? The interest you'd earn on the 401k (never mind the tax penalties) would far outstrip whatever potential return you think you'd get on a house (even taking into accout any "savings" over renting.) I'd also question whether you could get a mortgage in NYC if you say your down payment was from a cashed in retirement account or a loan against a retirement account. You certainly wouldn't get co-op approval (though your post makes me think you're in an outer-borough.)

At any rate, many people rent in NYC unless they're very rich. You have a thriving rental market with plenty of options. It's one of the trade-offs of living there.

MommyLiberty5013 · May 2012

MrsDe2008:
kaylie622:

We took withdrew $10k from one of our IRAs to buy our house, but we felt very comfortable with what we still had in that account and other accounts (H is a retirement savings hawk). There was a lot of analysis that went into deciding if it was the right move, and our tax bracket had a lot to do with it. We could have bought the house without that money, but we wanted to put more down and avoid PMI.

Do you have a financial advisor you could sit down with? I don't think you can get sound advice on a message board without presenting tons of important info, and a lot of it is pretty personal. You can't count on social security and even if you do get it, it won't be enough. A professional would be able to tell you approximately what amount you'd be looking at down the road with and without the retirement money.

ETA - in a perfect world, you should never touch retirement money. I'm not sure what part of NY you're in, but in our part of the northeast the cost of living makes it VERY hard to save up for a house, so I can understand what you mean when you say you can't cut back any further. You do need to take the future into account, though.

Thank you. I plan on talking to my financial advisor today and seeing what he says. I'm pretty sure we wouldn't be the only ones in the world to ever touch our retirement accounts for a home. One accountant I spoke with said people do it all the time. We live in NYC (very HCOL), so it is practically impossible to save.

Like you said, there are a lot of factors that go into deciding whether taking money out of the retirement account is right or not. DH actually lost his job last year and started with a whole new work place...he has over 24 years before he can retire and will be contributing to his 401k during that time. All the money he has in his retirement is from his previous employers...so, it's essentially like he is starting over. Think of it as a 20something year old just starting out in the work force with nothing in retirement. It is not like he is close to retiring and wanting to wipe it out.

We will definitely be talking to our FA and see what he says. Thanks again.

So, you have enough money to pay for an FA? But, you came here asking for advice about raiding a 401(k) to pay for a DP for a home you cannot afford? That's nice. All of your posts seem like you have already made up your mind to do this and that you came here looking for vindication for your decision.

MrsPM · May 2012

MommyLiberty5013:
MrsDe2008:
kaylie622:

We took withdrew $10k from one of our IRAs to buy our house, but we felt very comfortable with what we still had in that account and other accounts (H is a retirement savings hawk). There was a lot of analysis that went into deciding if it was the right move, and our tax bracket had a lot to do with it. We could have bought the house without that money, but we wanted to put more down and avoid PMI.

Do you have a financial advisor you could sit down with? I don't think you can get sound advice on a message board without presenting tons of important info, and a lot of it is pretty personal. You can't count on social security and even if you do get it, it won't be enough. A professional would be able to tell you approximately what amount you'd be looking at down the road with and without the retirement money.

ETA - in a perfect world, you should never touch retirement money. I'm not sure what part of NY you're in, but in our part of the northeast the cost of living makes it VERY hard to save up for a house, so I can understand what you mean when you say you can't cut back any further. You do need to take the future into account, though.

Thank you. I plan on talking to my financial advisor today and seeing what he says. I'm pretty sure we wouldn't be the only ones in the world to ever touch our retirement accounts for a home. One accountant I spoke with said people do it all the time. We live in NYC (very HCOL), so it is practically impossible to save.

Like you said, there are a lot of factors that go into deciding whether taking money out of the retirement account is right or not. DH actually lost his job last year and started with a whole new work place...he has over 24 years before he can retire and will be contributing to his 401k during that time. All the money he has in his retirement is from his previous employers...so, it's essentially like he is starting over. Think of it as a 20something year old just starting out in the work force with nothing in retirement. It is not like he is close to retiring and wanting to wipe it out.

We will definitely be talking to our FA and see what he says. Thanks again.

So, you have enough money to pay for an FA? But, you came here asking for advice about raiding a 401(k) to pay for a DP for a home you cannot afford? That's nice. All of your posts seem like you have already made up your mind to do this and that you came here looking for vindication for your decision.

This exactly. A 401K is meant for the future. You say that you can rebuild it for the rest of your DH's career. However, if something happens where he can't work, or loses a job, then that cuts into your rebuild time. Even though a lot of people do it, it does not mean it's the best idea. I hope your Financial Advisor can make you understand it, because you clearly aren't taking the advice that all of the people above me have given you.

Closing a retirement account...

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