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Should You Use Your 401(k) to Buy A House? |
The stock market is getting slammed,
and
housing prices are coming down at a pretty
good clip.
For someone trying to get into the housing
market, it
looks like the planets are aligned. With your
401(k)
funds losing money, it seems as if
borrowing money
from your retirement account for a real
estate
investment makes perfect sense. But,
before you
make any dramatic moves, be sure to
understand
the ramifications of taking this potentially
risky
step.
Remember: The reason a 401(k) is such a
good deal
is because it is your pre-tax
income. So, if you
want to "liquidate" your 401(k), that means
you will
have to pay the taxes that you did not pay
when you
earned it. In addition, you will pay a 10%
penalty for
withdrawing the money early. What does
this mean in
raw numbers?
Let's pretend you are liquidating an
account:
You have saved: $100,000
You are in the 30% tax bracket, so you will
be down
to $70,000.
Add in a 10% tax penalty and you are down
to
$60,000
The above scenario, of course, does not
take into
account how much your account would
otherwise
grow over the next X years until you retire.
Of course,
the shrinking of accounts in recent months
has many of
us discouraged, but we have to assume that
the
market will eventually bounce back, as will
your
account. (Yes, I realize we don't have to
believe this,
but a person can hope, right?) Plus, you are
receiving
the pre-tax benefit, which automatically puts
you 30%
ahead of the game.
Borrowing from your 401(k)
Some plans allow you to borrow from your
401(k)
account, but you must pay it back with
interest. (The
rate is usually prime plus 1 or so.) While the
interest
goes back to yourself, it's still questionable
whether
this is a good deal for you. The money you
are earning
to pay back the interest is post-tax, meaning
you are
paying tax on the money you earn and then
reimburse
with interest. Plus, as you pay back your
loan you are
not saving more and may even be missing
out on
employer-matched funds.
Remember that money is a very personal
issue. What
one person would liquidate her account for,
another
would never. You may be so anxious to get
into a
house right now that you will take this step.
Perhaps
you are confident that the housing market
has hit bottom and the money you would
lose on your 401(k)
would be worth it in real estate savings. Just
like
clothing, there is no "one size fits all" when it
comes to
mortgages.
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October's Home Value Improver |
Five Ways To Brighten Up
Your Kitchen in
A Weekend
For all the formal living rooms and dining
rooms of the
world that are built and decorated for
entertaining, the
kitchen has them beat. It's the room in which
your
family and guests spend the most time. In
fact, many
modern architects are recognizing this fact
and
designing a more open floor plan so that
people in the
kitchen can be part of the living room activity
and vice
versa. Let's face it: the kitchen is the heart of
the
home. From here is where all meals,
snacks, drinks,
and sharing flows.
But if ripping down walls and investing in
expensive
new cabinetry and appliances to create your
dream
kitchen sounds a little ambitious for your
budget, don't
be discouraged. There are many things you
can do to
make your kitchen brighter, more efficient,
and more
welcoming.
- Open up your cabinets.
While
painting the cabinets is a fantastic way to
give your
kitchen a whole new look, if you're not up for
the task
or expense, try removing a pair of cabinet
panels and
replacing them with glass. It will make the
room
appear open and allow you to show off those
pretty
bowls that are hidden in the cabinet. You
can also remove a drawer face and put
some low baskets
in the drawer's space.
- Add some fancy moldings.
Rich
moldings are not just for old houses
anymore. Take a
visit to your local hardware or home
improvement
store and you will find a selection of
moldings that you
can add to the bottom or tops of your
cabinetry for a
more finished look.
- Hang some plates on the
backsplash, or that
blank wall high above your appliances.
You
can get plate hangers very inexpensively,
and display
collectibles, vintage plates, or even the
saucers from
your fancy china.
- Go green - literally!
Put
some
seedlings in pots on your windowsill to get a
fresh
look. I have a client who even uses grass
seed in a
long thin planter to have some green grass
on the
sill.
- Add bead board above the counters
and
underneath the cabinets.
It will give
your
kitchen that homey, vintage flair. You can
find it at any
hardware store and have it cut to order.
Making these quick and inexpensive
changes will
make your kitchen more pleasant, which will
appeal to
potential buyers, or yourself!
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As the presidential election looms closer,
there is more uncertainty in the market than
ever. But one thing is clear - whether
Obama or McCain becomes president, our
tax codes will change.
Tax changes can have a major impact on a
person's ability to save or even to keep up
with monthly expenses. Paychecks can
dwindle quickly and tax refunds can quickly
disappear. It's important to understand the
possibilities and how you may be affected
once we elect a president. By knowing the
facts, you will be better prepared for any
change that occurs.
As always, please feel free to call or
email anytime for
more information on any mortgage topic!
Best regards,
Debbie Siegel
President
Westchester Mortgage
P.S. You're receiving this E-Newsletter because you have a prior relationship with me or with Westchester Mortgage. If I've sent this to you in error, or if you want to remove yourself from the list at any time, just click the "SafeUnsubscribe" link at the bottom of this e-mail.
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