Hardship Withdrawal from 401K for land purchase?
 

Anyone know the answer to this question, I KNOW that I can make a hardship withdrawal from my 401k to buy a "home".

If I withdrew that money and bought one or two acres of land to live on, is that okay? Would that qualify as puchasing my "home"?

The word home is rather vague, can someone clear this up?

Good luck. We tried when we bought our house. They told us we qualified for a loan. I still don't see how we would be paying interest to ourselves when it all goes in their pockets.

A loan against your 401K or a regular home loan? I ask because my SIL has apparently been able to take out a loan against her 401K and pay it back over time. In fact she has done it twice now. I don't understand how that works.

Right now I am living at my parents old home, and need to get out on my own, can I ask my parents to simply "kick me out" and that would prove the immediate hardship?

I would like to use my 401k monies to buy a few acres, and build a small cabin. I would like to do this without getting fired/quit my job!

The PROBLEM with a loan against your 401K is if you get fired or quit then you have to pay the loan in full. Loan are also against my religious beliefs.

A loan against your 401k is a smart move. You are paying yourself interest, which in this day and time, you will likely be paying yourself more interest that you would earn in the market.

A "hardship withdrawal" is a legal term meaning you are doing an early withdrawal from your 401k and has an immediate tax penalty for the year that you withdrew it in. You will be paying up to +/- 33% of it to the IRS since that income has not been taxed and it is mixed with funds from your employer.

With the current administration in place, that tax rate will likely go up, so I would look very long and carefully at a "withdrawal", but rather go with a loan if that is an option for you. The loan is a good deal for you all around. You are going to be paying interest to *someone* if you finance your home, so it might as well be to yourself!

Irv

You do realize that even a hardship withdrawl, you will still have to pay taxes on the money and likely the 10% early withdrawl penalty? Ouch!

Been there, done that. Extremely painful.

http://www.401khelpcenter.com/401k_e...l_article.html

I would rather have a home than a 401K if I had to choose between the two. YI thought he had to pay the taxes, but maybe not the penalty associated with early withdrawal to buy a home or in a hardship situation. Who holds your 401K? Ask them?

I'm in the Army, and we have something called the Thrift Savins Program. It is the government equivalent for a 401k. You can withdraw up to 50% or $50,000 from your TSP to buy a home, which ever is more. If you leave service, you have to pay it all back or pay taxes plus penalties. But so long as you are in service, you pay it back with interest to your own account. So you are effectively borrowing your own money and paying yourself back with interest. A good deal if you ask me.

Maybe, maybe not.

The $50,000 withdrawn will no longer have any investment growth, other than your own interest payments. It might not matter in todays economy, but 401K type plans, had excellent growth for a number of years. It may happen again, but a loan will limit that growth.

The interest paid on 401K loans, is not income tax deductable, as with a regular mortgage.

As you stated, If one gets out before the loan is paid back, the taxes and penalties are quite nasty.

No. Gotta purchase a primary residence with a hardship withdrawal. Just land will not qualify as a "primary residence."

Wayne, a loan against the 401.

Irvin, just how can you call it paying yourself interest? Does the extra money for the "interest" go into your account or the 401k holders pocket? I asked, the interest money does NOT go into your account but rather the holder of the account (finance company). So how can they say you are paying yourself? When I pay myself the money stays in my pocket. That line is one of the biggest 401k lies.

It is not a good idea, at all! You are paying double taxation, which more than wipes out the little bit you are "paying yourself in interest".

Plus, if you lose your job... the money is due immediately... with more penalties on top of that.

These days, with prime near zero, you cannot get a better loan rate than a mortgage loan. Certainly not from any 401(k).

http://moneycentral.msn.com/articles...asics/4714.asp

We bought our 6 acres with hubby's 401K $$. We took one of ours
and did it. We did pay taxes through the nose, but then we would have
lost about the same because of the present financial crisis. So, we were just saying the other day how glad we were that we did it. Hubby was also very
careful about making sure more than enough was taken out - because of that, we did get a good size return, but we figured, better safe than sorry.

Also, if you move to that property this year and it's more than 50 miles from where you are and you happen to switch jobs, you can claim moving expenses.

Everyone has a different idea on 401K $$. For us having a small mortgage was another asset of doing that. I would not do a "loan" on your 401K - we felt better about just withdrawing it.

Just our thoughts.

If you're living with mom and dad you are most likely young and you have a long time ahead of you to put money into savings for retirement. On the other hand, the money you put into savings early are the ones that make you the real money. You've probably seen the charts where it shows putting only four years into your IRA at 18-22 or so and then never any more, does better than an IRA funded every working year of your life from about age 30 on (been a long time since I've seen these charts, so I can't be sure of the age ranges, but they are close).

So my advice is look at the land/cabin you will build as an investment. Is it a good one? If you sell it in ten years will it have appreciated pretty good? If you can say that it is, then do it. If it's a toy you want right now because you simply want it, then I wouldn't do it by taking money out of the 401(k). IMO, when they say "hardship" there's a pretty good reason for stating it that way.

I personally wouldn't do it. This is something you can save for right now and you don't really need to take the money out of retirement to do this.


Jennifer

This is what we did. For the purchase of our ranch, we were able to come up with most of the purchase price, but not quite. So DH borrowed against his TSP for the remainder. It got us our ranch without a mortgage. The loan from TSP is paid with an automatic deduction each month, and all of the interest goes into DH's TSP account.

You have a job what's the problem with just a regular loan on the land?

Interest wise, you are way better off getting even a construction loan than borrowing against your 401k. Biggest reason I wouldn't is because you're also paying the loan back with after tax dollars. Which will be taxed again when you withdraw it upon retirement.

Loans are against my Religious beliefs, (and so is drawing unemployment)

Also Loans are too restrictive! What would happen if I decide to move to Kentucky TOMORROW? I want to be able to load up the pickup truck, cash in a suitcase and GO.

I got alot of freedom, to do what I want, when I want and go where I want, one a minutes notice, I would like to keep it that way. My Finances are in the BLACK and I enjoy that. Perhaps I should just save up in a savings account, buy the raw land and then quit my Job and access the 401k?

Should you take a withdrawal if you can
 

You may or may not become a homesteader but if you live you will get old. Do not mess with any retirement as you will need all you can save up. I am a homesteader been one for fifty years now I am old and thank God I did prepare for retirement. Do not borrow or with draw and money from your 401 don't be a idiot. Just my opinion from life experience.

Buying land & working on a house changes pretty much every single thing you've said there. :) You are in for a real eye opener.

Your 401K is a good thing for your future.

I'm not getting your goal of trying to obliterate it no matter what. Accessing the 401k will always cost you on penalties, payback, taxes, etc. Follow the plan, and use it for your retirement. It is a good thing to have as it is.

The savings account would work well.

--->Paul

You can write off the interest on a mortgage against your earnings on you taxes - look at the big picture and the long term implications.... Even tho you do move to Ky tomorrow - you still have that 401k money set aside - and if you're thinking of buying land/house/etc how could you even consider moving to Ky??? Is the land in Ky?

There's not the flexibility there once was in the real estate market - you couldn't sell your land in ILL to move to Ky... And once you own land, you kind of give up some of that freedom you currently have.... You gain freedom of a different sort -

Just what is important to you? Getting out on your own or being completely out of debt? Welcome to adulthood...... sigh.........

Check you state penalty tax for early withdraw!
In Wi you have to pay 33%.
Plus the fed early withdraw penalty.

You could loose an awful lot of that money when you total all the penalties.

But lying and manipulating the law, by having your parents kick you out (when that isn't at all the situation; nor are you in hardship -- just so you don't have to pay the financial penalties) isn't against your religious beliefs???? :eek: