401K Today

Driving Your Retirement Vehicle Home

A 401K should be on the radar of any W-2 employee that wants to have a comfortable retirement.  A 401K builds and earns interest tax free for retirement years.  Taxes are paid on withdrawals in retirement years when income and taxes are lower.  But a 401K has some other benefits that many people are not aware of.

Having a nest egg is like having a safety net.  Most 401K plans allow for a hardship withdrawal before 59 and a half.  With the security of knowing that there is money set aside in case of emergency, there is less fear in asking for a raise or taking a chance on a good opportunity that presents itself. 

The number one hidden benefit to having a 401K is that it can be borrowed against.  The 401K is still earning interest when borrowed against.  Most plans allow the interest paid to go back into the retirement account – which actually benefits the retirement account.  For more information about borrowing against a 401K, CLICK HERE.

The average 401K balance is just under $100K.  Most 401K plans will allow a loan of up to $50K or 50% of the vested balance – whichever is less.  The loan does not affect credit, nor is it taxable.  From a lending standpoint, the payments on the loan do not count against a borrower’s debt to income ratio. 

Borrowing against a 401K can often be the difference between home ownership and renting.  A larger down payment using a 401K loan could also be the difference between paying a higher rate of interest or higher mortgage insurance rate on a home. Considering the rate at which housing increases, borrowers can leverage and maximize the benefits of their retirement savings to live the American Dream of home ownership.  Call the Easterbrook Team today for more information.