Anonymous
Anonymous asked in Business & FinancePersonal Finance · 1 month ago

Can you use a COVID-19 401k withdrawal to buy a second home? ?

Don’t give me the nonsense 401k lost return. Money in hand today is way better than money 40 years down the road. Also a home purchase increases in value over time. Another scenario: a person renting for 25-30k a year in rent will own nothing and lose the opportunity to put that money into a property if they borrowed from their 401k to buy a house. 

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  • Anonymous
    1 month ago
    Favourite answer

    Yes.  It's your money and you can spend it how you want.  Generally, withdrawing from your 401k is a bad idea but, that is just general advice.  You have thought it through and you plan to reinvest the money in an investment that has proven to go up over time, provided that you don't start at a loss and pay too much.  Further, considering covid-19 I'm going to get out of mine too.  Tax brackets are going to go up - they have to in order to repay the massive covid assistance Americans have received.  But I'm rolling mine over to a Roth.  I was just thinking about researching where to put it - which Roth.  Anyway, your answer is yes.

  • 1 month ago

    Your premise is based on:

    - all homes increase in value which is not true

    - mortgages and maintenance are less than rent which may or may not be true.

    And you are also forgetting the tax implication of pulling the money out.  There is no penalty but there is standard income tax.  Pulling out $100,000 if you have no other income will cost you about $30000. 

  • 1 month ago

    You want to take money out of your 401K, then go ahead. If you are under age 59-1/2, you're going to lose about 1/5 of it to taxes and penalties. But do whatever you want. And if it's to buy a house, then buy a house. 

    However--you should probably think about something. Own that house you buy for 5 years, and find out you need a new HVAC system. Or your garage burns down. Or you need a roof. You're going to find out that "money in hand" is not going to be nearly enough to cover those things. But you do what you want, and screw the future--you're going to anyway. Just hope you don't have to end up wishing you had something to fall back on. Oh--and one more thing: real estate is not always something that increases in value. Think about all the houses that are flooded, destroyed by hurricanes, burnt down or get termites. How much do you think those are worth? Hope you can afford the flood insurance alone. 

    If I were you I'd read the fable about the Ant and the Grasshopper. 

  • Erik
    Lv 7
    1 month ago

    Technically you're not supposed to.  There are strict guidelines for what you can take out the money for.  But I did it years ago cause I needed a car.  I just asked for it and I got it.  Maybe the rules have changed some.  Just be prepared at tax time, because they will BEND YOU OVER.

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  • Eva
    Lv 7
    1 month ago

    No you cannot. The exception applies to a very specific set of circumstances.

  • Amy
    Lv 7
    1 month ago

    No you can't. You can only make a withdrawal due to hardship caused by covid, which "buying a second home" obviously isn't.

    "Borrowing" from a 401(k) is something else entirely. You can borrow money from the 401(k) at your current job, but you have to pay it back when you leave the job, which obviously is when you don't have money to spare.

     

     

    As for the rest of your nonsense: 

    Money in hand today (such as in a 401k) is way better than money spent today.

    Paying tax only once 40 years from now is better than paying tax every year. Unless tax rates go up by a lot.

    A home only increases in value over time if there is increasing demand to live in that location. Before covid, urban homes were gaining value and suburbs were losing value. We'll see whether fear drives people back to the suburbs or population loss reduces demand everywhere.

    Renting a second home does indeed sound like a stupid idea. The correct comparison is taking out a mortgage. You are better off paying a mortgage (low interest rate) while your 401(k) is invested in stocks (high return), rather than spend all your money on the house.

  • Rick B
    Lv 7
    1 month ago

    Have you been asleep the last few months?  You want to get into the landlord business when millions of Americans are refusing to pay rent and getting evicted????

  • Anonymous
    1 month ago

    You could listen to the IRS. But what do they know?

    https://www.irs.gov/newsroom/coronavirus-related-r...

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