Tom Lee ABR CRS GRI LTG SRES's Blog
Your 401K is a great resource of investing for retirement. Many people use their 401k’s as a part of their overall investment strategies, pulling money out of it when it’s needed. When you’re ready to buy a house, you may think that pulling money out of your 401k for a down payment is a good idea. But think again.
Although you should always speak with a financial professional about your money matters, the bottom line is that is probably not the best idea to use your 401k to supply money for a downpayment on a home.
First, your 401k funds are pre-tax dollars. That means that you haven’t paid any taxes on these funds. Your employer will often match the amount of money that you put into your 401k, as an incentive to help you save money for your future. You need to keep your 401k for a certain amount of time before any funds in the 401k become available to you without having to pay any kind of penalty. If you decide to take on the penalty, you can often face a cut to your employer’s match programs as well. This is why you must make this decision wisely.
Anyone under the age of 59.5 pays a penalty of 10 percent to take the money out of the fund. In addition, you’ll now need to pay taxes on this money, because it becomes a part of your adjusted gross income.
If you are looking to invest in a property, there may be other options for you rather than pulling money out of your 401k. While some plans allow you to borrow money from it. However, if your only option to get money to invest in a property is to pull money from your retirement account, it may not be the best time to invest in property for you.
Keep It Separate
If you’re younger (say in your 30’s or 40’s) your best option is to have a completely separate account that is used to save for a downpayment and other expenses that you’ll incur when you buy a home. In this sense you aren’t spreading yourself too thin as far as investments go. You should compartmentalize your money. Buying a home is a large investment in itself. Home equity can also be a good source of a nest egg in later years when you need it. However, even if a property will be an income property, it’s never smart to take from one investment account to provide for another unless you’re shifting your focus. You don’t want to reach retirement, only to see that your funds have been depleted and you can’t retire as expected.
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It may not look like it, but a one level house can be as roomy as a two story home. Newer one level homes are designed with highly functional open floor plans. Colonial or ranch style roofs give these homes a traditional appearance, making them look as if they are two floors instead of one from the outside.
Because a one story house may be longer or wider than a two story house, you may get more yard with a one story home. Both housing structures offer rewards and limitations. Following are key features, including pros and cons, that are good to consider when trying to decide whether you want to buy a one level house or a two story home.
Square footage – If you live alone, you may not need or want much space in your home. You may be happy with a house that’s 900 square feet. A small, one level home may cost less while giving you all the room that you want. Should you have a large family, you may want 900 square feet of space on each floor, for a total of 1,800 square feet of living space.
Functionality– Houses that are designed with lots of rooms and doors may feel cramped, even if there is a lot of square footage in the house. Do you want a house that allows you to keep an eye on young children? Not only could an open floor plan help meet this need, so too could a one level house. On the other hand, if you have older children and want them to have a great deal of privacy, a two story house could prove best. A two story house would allow your older children to spend time upstairs in their bedroom for an hour or two while you had free reign on the house’s first floor.
Physical health – Arthritis and other health challenges could make it hard to climb stairs. Other challenges that stairs cause include children falling down stairs and older pets having to climb stairs. If you plan on living at your house for several years, think about what your lifestyle will be like a few years after you move into the house. Right now, you may not mind climbing stairs each time you do laundry, head to bed or retrieve an item from your bedroom. Yet, five to six years later, you may not want to climb stairs so frequently. Having older parents living with you is another point to consider when thinking about whether to buy a one level or a two story home.
Number ofrooms – Two story homes tend to have more rooms with doors. You may want roomswith doors for office space, bedrooms for teenage children or guest space. Ifyou plan on renting out a portion of your home, a two story house is almost amust.
Think about the different ways that you will use your home. For example, if you plan on using your home to conduct business, a two story house may prove more efficient.That way, you could use one level for the business and another level solely for family.