Gardening and Greenhouse

Green Thumb answers:

Maybe but you would have to leave the job and roll the money into a IRA. A IRA can own real estate but the rules are very strict like you can’t do any management yourself. Your IRA can’t get into debt so you would have to have enough to pay cash and the management company.

Green Thumb answers:

Your first answer is almost correct. There is an exception to an early distribution and one of them is a first time home buyer so there is no 10% penalty. But your distribution will be taxable income.

Green Thumb answers:

If you take a loan rather than a withdrawal, and pay it back on schedule, you won’t incur any tax liability. Otherwise, even if your plan allows a withdrawal for buying the house, you’ll pay income tax on the withdrawal, plus a 10 pct penalty on the amount withdrawn if you are under 59-1/2. The$10K withdrawal with no penalty applies to an IRA, not a 401k – and even then, you still pay the income tax.

Green Thumb answers:

Just what I found on Google, you can search yourself also. Sounds complicated…

Green Thumb answers:

The last time that I checked, you could use up to $10,000 for a down payment on a house for first time home buyers. Any more than this and penalties will accrue. You still will have to pay taxes but not the 10% penalty.

Green Thumb answers:

Accessing Your Retirement Money
The purpose of your 401k retirement plan is to provide for your golden years. There are times, however, when you need cash and there are no viable options other than to tap your nest egg. For this reason, the government allows plan administrators to offer 401k loans to participants (be aware that the government doesn’t require this and therefore it is not always available.)
The primary benefit of 401k loans is that the proceeds are not subject to taxes or the ten-percent penalty fee except in the event of default. The government does not set guidelines or restrictions on the uses for 401k loans. Many employers, however, do; these can include minimum loan balances (usually $1,000) and the number of loans outstanding at any time in order to reduce administrative costs.

Additionally, some employers require that married employees get the consent of their spouse before taking out a loan, the theory being that both are affected by the decision.

401k Loan Limits
In most cases, an employee can borrow up to fifty-percent of their vested account balance up to a maximum of $50,000. If the employee has taken out a 401k loan in the previous twelve months, they will only be able to borrow fifty-percent of their vested account balance up to $50,000, less the outstanding balance on the previous loan. The 401k loan must be paid back over the subsequent five years with the exception of home purchases, which are eligible for a longer time horizon.

401k Loan Interest Expense
Even though you’re borrowing from yourself, you still have to pay interest! Most plans set the standard interest rate at prime plus an additional one or two percent. The benefit is two-fold: 1.) unlike interest paid to a bank, you will eventually get this money back in the form of qualified disbursements at or near retirement, and 2.) the interest you pay back into your 401k plan is tax-sheltered.

The Drawbacks of 401k Loans
The biggest danger of taking out a 401k loan is that it will disrupt the dollar cost averaging process. This has the potential to significantly lower long-term results. Another consideration is employment stability; if an employee quits or is terminated, the 401k loan must be repaid in full, normally within sixty days. Should the plan participant fail to meet the deadline, a default would be declared and penalty-fees and taxes assessed.

401k Hardship Withdrawal
What if your employer doesn’t offer 401k loans or you are not eligible? It may still be possible for you to access cash if the following four conditions are met (note that the government does not require employers to provide 401k hardship withdrawals, so you must check with your plan administrator):

The withdrawal is necessary due to an immediate and severe financial need
The withdrawal is necessary to satisfy that need (i.e., you can’t get the money elsewhere)
The amount of the loan does not exceed the amount of the need
You have already obtained all distributable or non-taxable loans available under your 401k plan
If these conditions are met, the funds can be withdrawn and used for one of the following five purposes:

A primary home purchase
Higher education tuition, room and board and fees for the next twelve months for you, your spouse, your dependents or children (even if they are no longer dependent upon you)
To prevent eviction from your home or foreclosure on your primary residence
Severe financial hardship
Tax-deductible medical expenses that are not reimbursed for you, your spouse or your dependents
All 401k hardship withdrawals are subject to taxes and the ten-percent penalty. This means that a $10,000 withdrawal can result in not only significantly less cash in your pocket (possibly as little as $6,500 or $7,500), but causes you to forgo forever the tax-deferred growth that could have been generated by those assets. 401k hardship withdrawal proceeds cannot be returned to the account once the disbursement has been made.

Non-Financial Hardship 401k Withdrawal
Although the investor must still pay taxes on non-financial hardship withdrawals, the ten-percent penalty fee is waived. There are five ways to qualify:

You become totally and permanently disabled
Your medical debts exceed 7.5 percent of your adjusted gross income
A court of law has ordered you to give the funds to your divorced spouse, a child, or a dependent
You are permanently laid off, terminated, quit, or retire early in the same year you turn 55 or later
You are permanently laid off, terminated, quit, or retired and have established a payment schedule of regular withdrawals in equal amounts of the rest of your expected natural life. Once the first withdrawal has been made, the investor is required to continue taking them for five years or until he/she reaches the age of 59 1/2, whichever is longer.
A 401k hardship withdrawal should be a last resort. An IRA, for example, has a lifetime withdrawal exemption of $10,000 for a house with no strings attached.

401k Plan Loans – An Overview

Allowing loans within a 401k plan is allowed by law, but an employer is not required to do so. Many small business just can’t afford the high cost of adding this feature to their plan. Even so, loans are a feature of most 401k plans. If offered, an employer must adhere to some very strict and detailed guidelines on making and administering them.

The statutes governing plan loans place no specific restrictions on what the need or use will be for loans, except that the loans must be reasonably available to all participants. But an employer can restrict the reasons for loans. Many only allow them for the following reasons: (1) to pay education expenses for yourself, spouse, or child; (2) to prevent eviction from your home; (3) to pay un-reimbursed medical expenses; or (4) to buy a first-time residence. The loan must be paid back over five years, although this can be extended for a home purchase.

If a participant has had no other plan loan in the 12 month period ending on the day before you apply for a loan, they are usually allowed to borrow up to 50% of their vested account balance to a maximum of $50,000. If the participant had another plan loan in the last 12 month period, they will be limited to 50% of their vested account balance, or $50,000, minus the outstanding loan balance in the preceding 12-month period, whichever is less.

Because of the cost, many plans will also set a minimum amount (often $1,000) and restrict the number of loans any participant may have outstanding at any one time.

Loan payments are generally be deducted from payroll checks and, if the participant is married, they may need their spouse to consent to the loan.

While interest rates vary by plan, the rate most often used is what is termed the “prime rate” plus one percent. The current “prime rate” can be found in the business section of your local newspaper or the Wall Street Journal.

Funds obtains from a loan are not subject to income tax or the 10% early withdrawal penalty (unless the loan defaults). If the participant should terminate employment, often any unpaid loan will be distributed to them as income. The amount will then be subject to income tax and may also be subject to 10% withdrawal penalty. A loan can’t be rolled over to an IRA.

Just because you can obtain a loan from your plan doesn’t mean it is always the best idea. So before sticking your hand in the cookie jar, you should consider the “pros and cons,” some of which may surprise you. And remember, the purpose of a 401k plan is to fund your retirement, so don’t shortchange your golden years by treating it as a checking account.

The Pros:

It’s convenient. There is no credit check or long credit application form. Some plans only require you to make a phone call, while others require a short loan form.
There is a low interest rate. You pay the rate set by the plan, usually one or two percentage points above the prime rate.
There usually are no restrictions. Most plans allow you to borrow for any reason.
You are paying the interest to yourself, not to the bank or credit card company.
The interest is tax-sheltered. You don’t have to pay taxes on the interest until retirement, when you take money out of the plan.
You choose where the money comes from. The advantage of being able to choose which investment option you will sell in order to obtain the funds for your loan is that you can leave untouched those investments with the best performance.
The Cons:

There are “opportunity” costs. According to the U.S. General Accounting Office, the interest rate paid on a plan loan is often less than the rate the plan funds would have otherwise earned.
Smaller contributions. Because you now have a loan payment, you may be tempted to reduce the amount you are contributing to the plan and thus reduce your long-term retirement account balance.
Loan defaults can be harmful to your financial health. If you quit working or change employers, the loan must be paid back right away. It’s not uncommon for plans to require full repayment of a loan within 60 days of termination of employment. If you can’t repay the loan, it is considered defaulted, and you will be taxed on the outstanding balance, including an early withdrawal penalty if you are not at least age 59 ½.
There may be fees involved.
Interest on the loan is not tax deductible, even if you borrow to purchase your primary home.
You have no flexibility in changing the payment terms of your loan.
When You Probably Shouldn’t Borrow From Your Plan

It is probably not wise to take out a 401k plan loan when:

You are planning to leave your job within the next couple of years.
There is a chance you will lose your job due to a company restructuring.
You are nearing retirement.
You can obtain the funds from other sources.
You can’t continue to make regular contributions to your plan.
You can’t pay off the loan right away if you are laid off or change jobs.
You need the loan to meet everyday living expenses.
You want the money to purchase some luxury item or pay for a vacation.

Green Thumb answers:

Not for buying a second home should you drain the retirement fund. Buying a first home provides certains breaks from taxes in this but you always need to assume you’re going to get hit with 20-30% cut from an early 401(k) withdrawal. If you plan to sell your existing home, you should analyze the expected return you get from your current invesment with the costs associated with the loss of 20-30% of your savings in the 401(k). Tax accountants can help with this, so can a real estate agent, but I would consult an accountant before a salesperson.

From the sale of your existing home you should target an amount that allows you to pay “cash” for the new one (eliminate mortgage) and provide you with enough to cover any tax penalty incurred by the early 401(k) withdrawal. You do not want to owe, and you seem to be in a position to make it so. Otherwise, you would have more complicated factors to deal with such as living paycheck to paycheck, which is fun, but not necessarily financially sound. Getting the lake house is a priority, but you need to try to ensure retirement funds are not depleted in a housing choice.

Renting is complicated and kicking a bad tenant out is really complicated. These are problems you should not create for yourself.

Once the matter is settled, figuring time value of money is important so that savings continues to work hard even if it takes a big hit. That’s how the move and transactions within the savings accounts relate among each other.

Consult professionals.

Green Thumb answers:

No… You can’t cash out your 401k without a penalty unless you can prove a hardship.

You can take a loan out of your 401k without penalty… You will have to pay it back with interest…. The good thing is that you are basically paying yourself because all the money, interest included, will go back into your account as you pay it back.

If you default and fail to pay it back you will be hit with taxes and penalties.

Green Thumb answers:

Money in your 401 has not been taxed. If you take it out and repay it to the 401 you are paying with monies that has already been taxed, instead make an occasional house payment. This will all be taken off the principal. If you do this once or twice a year, you can reduce your mortgage by 10 yrs.
Good luck and try not to rob peter to pay paul!