401k hardship question for mortgage

[Scottfamily26]

So I can take a hardship withdrawl for a downpayment on a mortgage and wanted to know how long after it's taken out do I have to use it in? There not asking for any documentation to take out the withdrawl and it is going to be used for a home. I was planning on taking it out and then putting it my savings for when needed. Also my bank has a program where for every dollar u put in a account over a 10 month period they put in 4 dollars to use on purchasing a home. If I took out the withdrawl and put the money in that account and then then essentially used that for a home purchase at the end of 10 months is that allowed? It's still being used for a home purchase.

 

[FlyingRon]

The IRS rules say it has to be an "immediate" need. Frankly, sticking it into a bank account for however long the bank expects to get the match isn't going to sound like an immediately need. You risk the IRS whacking you with the 10% penalty after the fact.

 

[adjusterjack]

The hardship distribution must be for an "immediate and heavy financial need." Buying a home appears to qualify but taking the money out and putting it in the bank for any appreciable length of time doesn't.

See the following IRS explanation:

https://www.irs.gov/retirement-plans/plan-participant-employee/401k-resource-guide-plan-participants-general-distribution-rules

And Publication 575:

https://www.irs.gov/publications/p575

 

[PayrollHRGuy]

Also my bank has a program where for every dollar u put in a account over a 10 month period they put in 4 dollars to use on purchasing a home.

Also you need to read the fine print on that promotion. There has to be some limitations. Otherwise everyone would deposit $100,000 to pay cash for a $500K house.

 

[Scottfamily26]

Also you need to read the fine print on that promotion. There has to be some limitations. Otherwise everyone would deposit $100,000 to pay cash for a $500K house.

Yeah I know the limits it's only up to 7500 which is fine

 

[Scottfamily26]

The IRS rules say it has to be an "immediate" need. Frankly, sticking it into a bank account for however long the bank expects to get the match isn't going to sound like an immediately need. You risk the IRS whacking you with the 10% penalty after the fact.

What if I dont care about the 10 percent penalty in the long run

 

[FlyingRon]

That's between you and the plan then I would guess.
Note, if you don't pay the 10% when it is due, there are going to be interest and penalties.

 

[Scottfamily26]

That's between you and the plan then I would guess.
Note, if you don't pay the 10% when it is due, there are going to be interest and penalties.

Dont they take out the 10% off the top anyway for early withdrawl or is that another 10 percent that gets paid when taxes are due

 

[PayrollHRGuy]

Yeah I know the limits it's only up to 7500 which is fine

Is that a $7500 deposit or $7500 that they will chip in? If the latter you are only talking about a $1500 deposit. If you can't come up with that you likely don't need to be buying a house.

And whatever they chip in will be taxable.

 

[Scottfamily26]

Called home buyers club I pay into an account for 10 months at 187.50 so a total i pay in10 months is 1875 and they match 4 dollars per dollar I put in so they put in 7500 so at end of 10 months the account will have 9375 to put down for a home

 

[PayrollHRGuy]

Called home buyers club I pay into an account for 10 months at 187.50 so a total i pay in10 months is 1875 and they match 4 dollars per dollar I put in so they put in 7500 so at end of 10 months the account will have 9375 to put down for a home

That is a hell of a deal. Free money is great. That doesn't change the fact that if you can't come up with $187.50 per month you really don't need to be buying a house.

 

[Scottfamily26]

That is a hell of a deal. Free money is great. That doesn't change the fact that if you can't come up with $187.50 per month you really don't need to be buying a house.

I can ... it would strap for 10 months... fact is I dont see paying rent for a 2 bedroom place at 1050 when I can have a 4 bedroom home for around the same price and not have a slum lord

 

[FlyingRon]

Dont they take out the 10% off the top anyway for early withdrawl or is that another 10 percent that gets paid when taxes are due

Not if you do it with a hardship exemption.

 

[Whoops2u]

Did you sign a contract? (Or, will you have to sign a contract?) If you do a search, many "home buyers club"s are not well regarded. Make sure you read your contract carefully and do a little research on the company offering the deal. Some of the clubs know their clients really want to get in a house and have no other way to do so and might squeeze in ways the client did not anticipate.

The club is not your buddy. They are not doing you a favor. Understand how they are making their money before you sign anything. (Related to a hardship withdrawal or not.)

 

[PayrollHRGuy]

I can ... it would strap for 10 months... fact is I dont see paying rent for a 2 bedroom place at 1050 when I can have a 4 bedroom home for around the same price and not have a slum lord

What are you going to do if a month or a year after you buy the house the AC or other major appliance craps out?