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| Tips on Buying a Home with the Help of Your Pension Plan |
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Homebuyers and First-Time Homebuyers
Special Tax Credits
The Economic Recovery Plan signed by President Obama provides for a tax
credit to first-time homebuyers who purchase a home between
January 1, 2009 and December 1, 2009. The tax credit can
reach 10% of the purchase price up to maximum credit of
$8,000. To qualify for the credit, the house must be used by
the buyers as a principal residence and the buyers cannot
have owned another principal residence for the past three
years. The new homeowners must also live in the house for at
least three years, or they may have to return the credit.
Additionally, to qualify for the credit buyers must make
less than $75,000 for singles or $150,000 for couples.
Higher-income buyers may qualify for a partial credit.
Please consult with your accountant for more details.
In addition, to spur the economy some states are also
offering special tax credits to new homebuyers. For example,
California is offering a $10,000 tax credit to anyone who
buys a new house from a builder between March 1, 2009, and
March 1, 2010. The California new homebuyer tax credit isn't
limited to first-time buyers.
Finding the Down-Payment
While the tax
credit can be a big help for qualified homebuyers, many
first-time homebuyers are still faced with the challenge of
coming up with the down payment.
Some who
have money in an IRA or 401(k)
with a previous employer may be able to access part of that
money without losing a large chunk of it to taxes and early
withdrawal penalties. |
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| 1) Loan from your retirement plan
to buy real estate (not limited to first-time home buyers) |
| You can tap into your retirement money tax-free and penalty-free
with a 401(k) loan. If you are self-employed or a small business
owner with no employees you can get your application
to start your own self-employed 401(k) here. Your business
doesn’t have to be elaborate or even incorporated – for
example, you can operate or start a business as a sole proprietor,
a 1099 income consultant, or as an independent contractor.
Once you’ve established your self-employed 401(k), (aka solo-401k
or individual 401k), you can move your qualified retirement accounts
to your new 401(k) plan. Then, you can borrow up to 50% of
your 401(k) plan account balance or $50,000, whichever is less.
This 401(k) loan will be Tax-Free and Penalty-Free, as long as the
money is paid back. You can use the loan for any purpose.
Click here to learn more about the Self-Employed
401(k). |
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| 2) Tap your IRA without tax penalty |
You can withdraw up to $10,000 (once in a lifetime) from your IRA
to buy a first-time home for yourself or for a family member.
While not be subject to the IRS 10% early withdrawal penalty, normal
taxes will still apply.
What if you don’t have an IRA? If you do not have an IRA,
you can roll over into a “Rollover IRA” your retirement
funds from previous employers where you had a qualified pension
plan such as a
- 401(k)
- 403(b) tax-sheltered annuity plan
- Other qualified plan
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| 3) Save Money by Getting Rid
of PMI |
Purchase a house with less than 20% downpayment
and you may be required to pay for Private Mortgage Insurance or (PMI)
to protect the lender in case you default on your loan.
PMI can cost you many thousands of dollars. On a
$100,000 loan with 10 percent down ($10,000), PMI might cost you $40 a
month. By eliminating the PMI, you could save $480 a year and several
thousands of dollars over the course of your loan.
If possible, look to eliminate these PMI
payments which are not deducted from your principal by getting at
least a 20% equity stake in your house. Ask your lender to provide
you in writing their specific requirements to cancel or eliminate the
PMI from your monthly mortgage payments.
If you are an independent
contractor, self-employed, or business owner with no
employees, you may be able to use your retirement funds to
get a loan to increase your equity in your house. Because
now, some Self-Employed 401(k) plans will allow you to move
your IRA, 401(k) from a previous employer, or other
retirement accounts into a Self-Employed 401(k) and allow
you to borrow up to $50,000 depending on your loan balance. |
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| What are the advantages of a Self-employed
401(k) loan? |
- Obtaining
a Self Employed 401(k) loan is easy--there is little paperwork, and
there is no credit check - ever. The Self-Employed 401(k) loan does
not show up on your credit report.
- The
Self-Employed 401(k) loan is tax-free and penalty free. You won't pay
taxes and penalties on the amount you borrow from your retirement
account, as long as you repay the loan on time.
- Interest rate on Self-Employed 401(k) plan loans
is at prime rate. It's hard to find a lower interest rate for a
personal loan.
- The
principal and interest you pay on your 401(k) loan go to your own plan
account; you are paying interest to yourself, not to a bank or other
lender.
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| What are the requirements for repaying the Self-
Employed 401(k) loan? |
You will have to
repay money you've borrowed from your 401(k) within five years by
making monthly payments of principal and interest to your 401(k)
account. However, if you use the funds to purchase a primary residence
you may extend the payments for up to ten years.
Make sure you
follow the repayment requirements for your loan. If you don't repay
the loan as required, the money you borrowed will be considered a
taxable distribution. If you're under age 59½, you'll owe a 10 percent
federal penalty tax, as well as regular income tax on the outstanding
loan balance. Since you are paying interest to your account, the
401(k) loan interest payments are not tax-deductible.
Good News! We offer an easy and convenient online way
to set up a Self-Employed 401(k) or Rollover IRA. Get all
the paperwork needed to open your Self-Employed 401(k) or Rollover
IRA here. Once your account has been funded, you can tap into your retirement
funds the smart way. Your new account will be managed by a
large and reputable U.S. mutual fund company.
Just fill out our Application
Request Form. It’s that easy! You’ll even
be able to print out all of the necessary documents from your printer
and review them at your convenience! |
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| Information contained on this website should
not be used as a substitute for legal or tax advice. Please consult
with your appropriate professional for such advice. Read the prospectus
before investing. Mutual fund returns and shares fluctuate, and shares,
when redeemed, may be worth more or less than original cost. |
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