I know my title is already making some people cringe, but hear me out.
I'm with a company now that has an ESOP program, which I'm currently 80% vested in. I had a 401k with the previous company I worked for which neither I nor the previous employer have contributed to for over a year. I've been thinking about rolling it into an IRA or ROTH, but didn't want to go through with it until I fully understood the process, so I've just had it sitting in the old 401k account. According to my last statement, it's worth just shy of $5k.
Rent has increased in my city by a lot, and once our lease is up in May 2017, the company who just bought my apartment complex is going to raise our rent by about $150 a month, which will be about on the level of the price of rent in our city.
My fiancé (30f) and I (30m) each make $50k/yr and the only debt we have is my student loan which, as of this month, has just under $40k left on it. For the last few months, I've been throwing all the money I can at that to get it paid off ASAP.
Recently she and I were talking and we realized that with our rent going up, depending on how much a house costs and how much we can put down on a payment, we might actually be able to pay less for a mortgage if we bought a house than we would pay in rent, taxes, insurance, etc. Additionally, it would be a little more worth it since we'd eventually own it and have an actual financial investment in the property as opposed to paying rent to someone else's pocket. And now, with her grandmother passing away earlier this year, my fiancé has come into a bit of an inheritance we could use on a down payment, which has sped up that conversation a bit.
We have enough money that we can put 20% down on an offer we just made for $258k on a good home, and we will have a couple thousand leftover to help cover closing costs and purchase appliances (washer/dryer, refrigerator). In addition to that, between the 2 of us, we have about $5k in savings.
So this brings me to my actual question. With the money we are putting toward the down payment, the closing costs, and the cost of moving (renting a Uhaul, pizza and beer for our friends who help, etc) I'm now afraid we won't have much of a cushion left in savings until we can build it back up again for a couple months after moving in (assuming our offer gets accepted).
I know if I cash out my 401k, I'll get hit with a 20% tax on it, which would be around $1,000, leaving us with about $4,000 we can put toward the house or savings. I know I'll be taking a bit of a hit to my long-term investment, but I'm wondering if, since I'm only 30-years-old, there's not much in it, and most of it was either money my employer contributed plus the earned interest, if it would be smarter to think about the short term of having a bit of a cushion in my savings moving into a new home right off the bat. I tend to be pretty fiscally conservative and the prospect of having no, or very little savings kind of freaks me out in case disaster hits and I'd have to charge something to credit and go even more into debt without any financial cushion.
I know there are pros and cons to leaving it alone and rolling it into an investment, as well as with cashing it out, but I'm having a hard time deciding which decision potentially has more drawbacks.
Any insight would be appreciated!
tl;dr: I have an old 401k worth $5k. Putting 20% down payment on a house worth $258k. Should I cash out 401k to pad my savings account?
Submitted December 26, 2016 at 04:58AM by corkum http://ift.tt/2hXvcRb personalfinance
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