Can I Use My 401(k) To Buy A House? | FortuneBuilders

Abstract

The IRS will label the withdrawal as a "Hardship withdrawal." As described by the IRS, a hardship withdrawal is when account holders use the money in their 401(k) to cover an "Immediate and heavy financial need." As a "Hardship withdrawal," account holders will need to prove to their employees that the purchase of a home fits within the context of an "Immediate and heavy financial need" before the withdrawal is approved. Regardless of who you are, there's a lot you can do with that money, which begs the question: Can I use my 401k to buy a house? To be clear, the answer is yes, but account holders need to ask themselves something more important: Should you use your 401(k) to buy a house? Just because you can use a 401(k) to buy a house, doesn't mean you should; there are costly ramifications associated with buying a house via funds pulled from a 401(k). The longer money can sit in a retirement account, the more the account holder will benefit from compound growth. If we can assume the money left in the account will grow at an annualized rate of 7%, the account could reach as high as $54,000 over a 25-year period. Prospective homebuyers don't have to use a 401(k) to buy a house; instead, they can turn to one of the following sources of capital: IRA Account FHA Loan VA Loan Mortgage Programs IRA Account Those looking for funds to buy a home should consider looking at an Individual Retirement Account before they even think about their own 401(k). Open An Account Once you determine what type of account and brokerage you'd like to go with, give the brokerage a call. You'll want to find out how to open the account and the exact instructions for moving your funds from your 401(k) to your IRA. Your brokerage might have a specific way that they want the check written, or perhaps they'll require that your account information is printed on the check.