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Old 05-09-2019, 08:03 AM   #21
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I don't understand the reluctance to take a mortgage, while you are considering taking out a HELOC or 401K loan. They are all loans, and a mortgage probably has the best terms, doesn't it? You can pay off all or most of the mortgage when you sell your current home.

I certainly wouldn't take the tax hit of withdrawing from the 401K,if you can even do that while she's still working.

Reluctance has faded now that I can see that taking a huge sum out is not a good option tax-wise. Better to borrow bank loan of some kind, then use small steady 401K draws to pay the loan. Was never considering a 401K loan.

Am I missing something though, is there something that would prevent her from drawing on her 401K while she is working??
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Old 05-09-2019, 08:09 AM   #22
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Proceed carefully here you are already in love which this property...have you already made an offer, I can't tell from what you have written..

Have not made an offer yet. DW has not seen it in person yet, we will go back there Sat AM. While I am known to get "locked in" on obtaining some things (like vintage cars), I would say that I am in "like" with this property right now, it is something very unique and different and, thus far, I can't see any reason why it would not work for us or why we shouldn't buy it. It is waterfront RE. But if it doesn't happen, so be it.
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Old 05-09-2019, 10:10 AM   #23
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Am I missing something though, is there something that would prevent her from drawing on her 401K while she is working??
Assuming this is correct...

https://budgeting.thenest.com/can-ca...yed-26009.html

Quote:
You are allowed to cash out a 401(k) while you are employed, but you cannot cash it out if you're still employed at the company that sponsors the 401(k) that you wish to cash out.
...

Internal Revenue Service rules prohibit workers from cashing out a 401(k) while they are still employed at the company that sponsors the plan.
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Old 05-09-2019, 10:26 AM   #24
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Thanks, I had read something similar after I posted that. As it turns out, DW got "downsized" (Laid off, she didn't lose weight....) last fall and has just signed a new job offer, starting in June. So she no longer works for the company that sponsored her plan....


But a further complication, and purely coincidental, is that the former company actually just shifted it's 401K plan management from Vanguard to Prudential. There was a blackout period that I think just ended and I don't have my Prudential access yet....
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Old 05-09-2019, 10:29 AM   #25
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Am I missing something though, is there something that would prevent her from drawing on her 401K while she is working??
the internal revenue code

retirement plan monies are generally earmarked to provide retirement benefits
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Old 05-09-2019, 01:51 PM   #26
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Easily, by at least 2x.
For me, this makes the "mortgage for 3 years at the most favorable rate you can find with 0 points, then decide if you want to use the proceeds of your sale to pay it off" choice a no-brainer. But having a mortgage doesn't keep me awake at night.

In my personal experience falling in love with a particular property (or car, or anything non-human) can lead to rash/bad choices. Not saying that would happen to you, just that I've seen it with family and friends.

Good luck either way!
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Old 05-09-2019, 04:21 PM   #27
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very unique properties tend to be very difficult to sell. What about when you go to sell?
Proceed with caution.
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Old 05-09-2019, 05:10 PM   #28
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Many 401K plans allow in service withdrawals. The specific rules vary by plan, there may be an age limit (>59.5), only can withdraw the vested amount, can only do it one time, etc.
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Old 05-09-2019, 05:16 PM   #29
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Originally Posted by doneat54 View Post
Have not made an offer yet. DW has not seen it in person yet, we will go back there Sat AM. While I am known to get "locked in" on obtaining some things (like vintage cars), I would say that I am in "like" with this property right now, it is something very unique and different and, thus far, I can't see any reason why it would not work for us or why we shouldn't buy it. It is waterfront RE. But if it doesn't happen, so be it.
WOW...... I'm guessing she also does not know she is the one buying this.

If it's a stretch, why don't you go back to work, since your wife will still be working for 3 more years ?
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Old 05-09-2019, 09:15 PM   #30
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WOW...... I'm guessing she also does not know she is the one buying this.

If it's a stretch, why don't you go back to work, since your wife will still be working for 3 more years ?



LOL, trust me she does. SHE is the one pushing this (a bit). We'll see what happens Sat AM. And trust me, I am NOT "Going back to work".....!!!

To a previous posters note about "unique" properties, I agree. It can be very appealing to us, but there are some elements that make it not mainstream, and I am aware that while you can get what you want for a good price, it doesn't mean that you be able to re-sell well if you decide after a while that it is not for you. We are moving slowly here, and thinking things over. Not even an offer yet. But I do see a way financially to make this work and I think the risk of punching any big holes in our longer term financial picture/portfolio/retirement is pretty low, if any at all.

Thanks for all the insight/comments. I have learned a lot so far and every day that goes by that I just "think" about it without a commitment of any kind is a good thing.
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Old 05-12-2019, 04:39 PM   #31
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Well we're getting in deep and getting excited. DW and I saw the property yesterday and she loved it. We sent an offer last night, a bit lower than asking and she replied that they want asking price, so after discussing it further we decided to offer asking.

Anyway, about the financing. Realizing the tax shock of pulling a big sum out of DWs 401k, I decided to get a mortgage for about 60% of the asking price, pay cash for the rest, and still have $40-$50k cash available to spend on the property in the coming years. We will basically rob our cash piles now to close the deal knowing that we can pull from the 401K should we need to... not take money out if we don't and pay higher taxes on it while DW is working. But we will then pay the mortgage, taxes, insurance and utilities on the new property with an annual lump sum pull from her 401K. We will be able to do that and stay in the current tax bracket, although the next higher one is only 2% more.


We will be robbing our travel and home improvement budget (now sitting in a cash savings account) for the next 2 years to get the cash needed in the plan. As such, we will be comfortable pulling those funds from the 401k as they become needed.

I did do the math of what the taxes (incremental) would be if we did pull the whole pile out of the 401K vs. what the interest will be on the mortgage over the next 3 years and it was clear that the mortgage was the way to go. We also have a large lot of undeveloped land that we can sell if needed.


Deal still not done though... going to be an interesting week....
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Old 05-13-2019, 05:42 AM   #32
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And away you go, sounds like you have a plan.....
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Old 05-13-2019, 05:47 AM   #33
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Best of luck. I wouldn't go your route to finance after FIREd. I'm free and clear of debt for a long time and FIREd last year.
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Old 05-13-2019, 09:08 AM   #34
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Congrats on the purchase. Very exciting and happy for you.
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Old 05-13-2019, 09:11 AM   #35
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Congrats on the purchase. Very exciting and happy for you.

Thanks, but it is not quite a purchase yet! A few hoops to jump through, inspections, e-mails flying back and forth, banks, etc....fun stuff!
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Old 05-13-2019, 10:11 AM   #36
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But you do have a fully executed Purchase Agreement at this time?
Most of the contingencies are always to the buyers advantage/option.

If they contractually agreed to sell it to you then they are on the hook for it.

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Old 05-13-2019, 01:11 PM   #37
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P&S is drafted; reviewing now, consulting a RE lawyer and (huge sigh of relief here), just got off the phone with Prudential and we are able to pull money out of DWs 401k and probably ONLY because she got RIF'ed from her job last fall and is starting a new job in June, so since she doesn't work for the company that sponsored the plan, she can now draw from it with no penalty. We also last minute decided to totally maximize the amount of cash to put down, minimize how much to mortgage, which minimizes how much we have to pull out of the 401k to pay that mortgage each month. We'll pull other monies out for things that we were saving the cash for as we need to.
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Old 05-13-2019, 01:13 PM   #38
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P&S is drafted; reviewing now, consulting a RE lawyer and (huge sigh of relief here), just got off the phone with Prudential and we are able to pull money out of DWs 401k and probably ONLY because she got RIF'ed from her job last fall and is starting a new job in June, so since she doesn't work for the company that sponsored the plan, she can now draw from it with no penalty. We also last minute decided to totally maximize the amount of cash to put down, minimize how much to mortgage, which minimizes how much we have to pull out of the 401k to pay that mortgage each month. We'll pull other monies out for things that we were saving the cash for as we need to.
so you will have to pay taxes on the 401k distribution but you somehow escaped the 10% penalty for under 59.5?
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Old 05-13-2019, 01:20 PM   #39
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so you will have to pay taxes on the 401k distribution but you somehow escaped the 10% penalty for under 59.5?

Yes, because DW is 59.8125. ;-)

Again, I think if she was still working for the old company, this wouldn't have worked. Prudential will withhold 20% for federal and 5.05 for state on withdrawls.


Unfortunately DW new salary keeps us (still) squarely in the 22% fed bracket, so we know taking that money out *will* cost us more tax paying than it would if we did it when she wasn't working.


We have also got login to the IRS website so that we can (I think, they are snail mailing an access code) at any point in the year we can see exactly where were tax wise.
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Old 05-13-2019, 04:37 PM   #40
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I don't get it... why pull money out while DW is still working and your marginal tax rate is 27% (22% fed and 5% state)? Just get a slightly larger mortgage and do withdrwals once DW retires and you are in a lower tax bracket.

But we appreciate your contribution to the operation of the country.
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