Should we cash out our 401k to buy a house?

Question

My husband got laid off his job of 19 years. He wants to go back to college and finish his degree. Were considering cashing out his 401k and paying cash for a house with the belief that  it will reduce our month expenses and allow him to change careers. Right now our biggest expense is our rent. I know there is  a 10% penalty and then taxes must be paid based on income. We have a family of 5 and he was the only one employed. The security of owning it outright is very appealing. It seems a solid choice barring the resulting taxes.  Any advice?

Go with the flow · Accepted Answer

Roll over the account to a roll over IRA.
If you get in trouble in the future, then you can take out bits and pieces.
Perhaps he'll find a good job by then.

You know that you could very well only see 50% of that 401K money after the taxes and penalties.
And, the 401K company may only take out 20%, so you will have to save, the rest to pay uncle sam yourself at tax time.  Expect a big bill.

Note:  Housing is expected to drop another 10% this year.
Your "investment" will be worth less...

Ryan M · Answer

There will also be income taxes on that distribution as well as the 20%.  Make sure you take that into consideration as well.  Also, know that the average annual appreciation of housing is about 3% per year over the last 70 years.  A 401k is over double that, so you are really robbing the account from your later years.

Anonymous · Answer

Bad, bad idea.  Besides the godawful hit you'll take on taxes and penalty, what if he (or you) wind up with future employment in another location?  Then you're stuck with the house.  Never buy a house unless you are in a stable employment situation.

Jan C · Answer

No, no and no. This is not a good time for someone with inadequate income and going to college to make such a move. Get some more adult opinions before you do this.

ranichol2 · Answer

if I buy a house will I have to pay taxes on that income

Anonymous · Answer

he can''t collect unemployment if he goes to school and why on earth are you not working to help this situation?

Genuine Guidance · Answer

Sorry, but that is a dumb plan

kemperk · Answer

no
no 
no
leave it alone
--I can guide you on how to get him $ and you $
-------------u did not say how long ago you lost your house.

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Should we cash out our 401k to buy a house?

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