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I have a 401k from a company I no longer work at. It's worth about 70k.

What should I do with it?

Is there any way I can roll it into something that I can use as part of a down payment for a house in 1 year?

If not, what is the best option right now?

marked as duplicate by Dilip Sarwate, JoeTaxpayer May 21 '14 at 21:49

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  • Is it a Roth or traditional 401(k)? – dg99 May 21 '14 at 21:12
  • See this question and its answers for some ideas. – Dilip Sarwate May 21 '14 at 21:15
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    I don't see how this is a duplicate, other than the other question also deals with a 401k. – rentorbuy19 May 21 '14 at 22:05
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I suggest rolling it over to the 401(k) with your new employer. Particularly if they match any percentage of your contribution, it would be in your interest to take as much of that money as possible.

When it comes to borrowing money from your 401(k), it looks like the issues AbraCadaver mentioned only apply if you don't pay back the money (http://www.kiplinger.com/article/real-estate/T010-C000-S002-borrowing-from-your-retirement-plan-to-buy-a-home.html). The reasonable argument against taking money out of your 401(k) to buy a home is that it leaves a dent in your retirement nest egg (and its earning power) during key earning years. On the plus side for borrowing from your 401(k), it's very low interest--and it's interest you're paying back to yourself over a 5-year period. At its current value, the most you could borrow from your 401(k) is $35K. If you're fortunate in where you live, that could be most or all of the downpayment.

In my own experience, my wife borrowed against her 401(k) balance for the earnest money when we purchased a new home. Fortunately for us, an investor snapped up my previous home within 4 days of us listing it, so she was able to pay back her loan in full right away.

  • Thanks for the info. So if I roll into an IRA, I won't be able to use it for a down payment right? I would have to leave it in the 401k? – rentorbuy19 May 21 '14 at 21:53
  • As far as I know, you can't borrow from an IRA for that purpose. Puzzling that my answer was downvoted. – Scott Lawrence May 22 '14 at 14:18
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Your best bets are a Roth IRA or traditional IRA. If you roll it to a Roth, you will have to pay taxes on the amount you roll over (unless it was a Roth 401k), however what is in the Roth will grow tax free and it will be tax free when you withdraw. With a traditional IRA, you won't owe taxes on the money now but will pay taxes when you withdraw.

You won't be able to withdraw this money until 59 1/2 years of age without paying a penalty, the same goes for your current 401k. If you take the money (for mortgage, other investment, etc.) and don't roll it over to a qualified account, you will owe taxes on it plus a 10% penalty. So you will only get between 60% and 70% of its value.

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