Can I tap into my 401k ...

[AngelinaCatHub]

You have to be very careful when you are contemplating buying a house with the intent to flip it. My BF bought a house for 90k 8 years ago. It isn't in a great neighborhood but it isn't considered the slums either. He put 15k into it. 3 years later he applied for a HELOC and the bank inflated the house value to 159k to support loaning 40k. He put it on the market about 1 year before the housing values tanked and he couldn't sell it then. It has steadily went down in value each year to where it is now worth 45k. He can't sell it as the block he lives in is now swarming with rental houses that take section 8. His neighbors have probably 10 different people that live with them and deal drugs out of the house amoung other things. The police are continually called to the house yet the landlord does nothing because he lives 200 miles away. The landlord collects the money section 8 gives him and doesn't collect what he is supposed to from them. Section 8 could care less. Numerous complaints have been filed and as long as there hasn't been a murder committed at the property it is pretty much ignored. His block, when he moved in, had people that were older and kept to themselves. Within 2 years the whole demographic changed.

So I'd just be careful about buying a house outright. Are you prepared to lose that 50k should you not be able to sell it?

A very good point. However, if he could rent it, it at lease would (maybe) not be stripped out. Sorry to hear of this, yet I still state, there are many fine places that can be had if one looks. 'Hub

[helpmeout]

Oh that's really a great interest rate. (sarcasm) You will be penalized 10% as well as income taxes to the tune of about 40% in all. Real smart to rob your future. I see you back in bk in about eight years. Purchase a smaller home and with the amount of stock of empty houses you could buy contract for Deed. Just to take over someones house he is about to lose. There are other ways, but you picked the worst of them. You are shooting your own foot and you will never pay it all back, loan or not. You will never realize compound interest on the money that is not in that account. You will lose all the way round. Please do a search on 401K on this forum to see the multitude of those who are still mourning over this decision including us. 'Hub

That 10% penalty only applies to EARLY withdrawal. It does not apply to a 401K loan that is for the purchase of the main residence or a loan that is to be paid back in 5 years. The plan also has to allow for the loan and cannot be for more than 50% of the balance at the time of the loan.

Now, if the OP were to switch jobs, the OP would have to come up with the balance of the 401K loan or the balance will be considered an early withdrawal or a distribution. Which is why it's not a good idea to do a 401K loan as one is then tied to that job until the loan is paid off. Which may not be possible unless the loan amount wasn't for that much to begin with.

[catleg]

Early withdrawl from a retirement account (IRA/401k) is permitted without paying the early withdrawl penalty only up to 10,000 (just pay regular tax).

Loans from 401k for home purchase are permitted to extend greater than 5 years, but maximum loan is 50,000 (or half the account value).

Sucks that the vultures are out flipping again. Hopefully they'll get caught without a chair when the music stops again.

My personal view of 401k is that it is an excellent tax deferred judgment proof creditor proof savings vehicle, not necessarily just for retirement.
At some point you need something besides paper promises for your security.

[Me2Broke]

Early withdrawl from a retirement account (IRA/401k) is permitted without paying the early withdrawl penalty only up to 10,000 (just pay regular tax).

Loans from 401k for home purchase are permitted to extend greater than 5 years, but maximum loan is 50,000 (or half the account value).

Sucks that the vultures are out flipping again. Hopefully they'll get caught without a chair when the music stops again.

My personal view of 401k is that it is an excellent tax deferred judgment proof creditor proof savings vehicle, not necessarily just for retirement.
At some point you need something besides paper promises for your security.

After reviewing this thread I am happy that I did not touch my 401k. I didn't realize at the time I made that decision that it would be exempt when I filed for Bankruptcy. Now I am happy to think in the future when all the dust has settle that I may be able to use this money to start over again, even if I did have to pay a penalty. I may be worth it when the time comes. I guess I will have to wait and see.

[chrisdfw]

Speak to a attorney, but a 401k plan might not even be part of the estate, which is diferent from being exempt, so it might be ok, a loan however while in ch7 might be aproblem. Even if allowed it might cause you trouble and hassles, just wait a little

[Me2Broke]

Yes, I do plan to check with the attorney, my understanding so far is the 401K is exempt and not part of my estate. Shoot, I don't have much of any estate left, that is for sure.

[chrisdfw]

Yes, I do plan to check with the attorney, my understanding so far is the 401K is exempt and not part of my estate. Shoot, I don't have much of any estate left, that is for sure.

Exempt and not part of the estate are two different things, exemptions can be challenged, but the ERISA rules actually put the 401k out of the estate, not just exempt, even though there are exemptions for it. Congress created an exemption, but the supreme court ruled that ERISA qualified plans are not even part of the estate, so no exemption is really necessary, at least according to my limited understanding.

I am not an attorney and my advice is worth exactly what you paid for it. I work with retirement plans a lot so its an area I follow.

[SweetGeorgia]

A loan from a 401K isn't that awful an idea, but I think the circumstances where it's a GOOD idea are very limited. It's a loan, so there's no tax or penalty as long as you pay it back. We had to take one last year, but we've also had such incredible rental losses that we will have NEGATIVE income for years. In other words, if we can't pay, and it must be treated as a "distribution" we won't owe income tax. We could still be liable for the penalty, though. So that's an unusual situation. *

I frankly don't think it's a good time to buy real estate, especially in Phoenix or Florida. My husband disagrees with me and thinks we're paying too much in rent (like you) but I think it's worth the peace of mind. That said, if I could get a house for 50K, I might change my mind.

And like everyone else, I say don't do anything until your case is closed and filed and archived and you've gotten some distance on it!

Another idea might be to save up while you're waiting - I do understand that having to compete with cash buyers means you probably need cash. Are you making 401K contributions now, or were you planning to resume contributions soon? You could put those in the house fund.

*Before anyone yells at me, we really did need to do it, and we'd had such good fund performance that it was only about a year's gain+contribution that we took.