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Is It Smart to Buy a Home Using Retirement Savings?

Is It Smart to Buy a Home Using Retirement Savings?

Here’s The Scoop

Is It Smart to Buy a Home Using Retirement Savings? A shocking 1 in 10 American homeowners say they pulled money from their retirement savings to cover down payments and closing costs associated with buying their house.

Bankrate’s recent survey reveals 9% of homeowners withdrew from their 401(k) or other retirement account to make the purchase, with younger generations most likely to do so.

Sixteen percent of Gen Z respondents (ages 18-27) and 12% of millennials (ages 28-43) reported taking money out of retirement savings to fund their down payment, compared to 7% of Gen Xers (ages 44-59) and 8% of baby boomers (ages 60-78).

But is it a smart financial move? David Ragland, CEO of IRC Wealth and a certified financial planner, does not recommend withdrawing from retirement funds to buy a home.

He cites two major reasons: the saver will lose out on the growth they would have had if they kept the money in the fund over the long term, and the government takes a big chunk of the funds withdrawn from a retirement account.

Between federal and state taxes and a 10% penalty for a withdrawal, a person is looking at paying 40% on every dollar they take out.

“You’re not making a $30,000 decision, you’re making a $1.2 million decision,” Ragland said. “That’s why you don’t do it.”

However, for those who have a retirement fund and do not have other means to come up with a down payment, Ragland offered an alternative option.

He noted that those with a 401(k) are able to take a loan against those funds up to $50,000, allowing people to keep their funds in their retirement account while getting the down payment money they need, and avoiding any taxes or penalties.

What do you think? Let us know by participating in our poll, or join the discussion in the comment section below!


1 Comment

1 Comment

  1. Davida Pietrzak

    April 6, 2024 at 7:39 pm

    Yes, in a perfect world u shouldn’t withdraw from a retirement account to buy a home but guess what… with the cost of everything skyrocketing under Biden many couples have no choice?!!!!

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