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Until now, I was pretty much convinced that rather than rolling over the 401k from my old company to the new company, it is a much better option to roll everything over to a Rollover IRA, and my pointers for this belief were below:

  • I can invest in my favorite Vanguard Index fund now
  • Everything is centralized irrespective of what number of jobs I change

However, I am not a homeowner, and I am thinking about buying a house in the near future. I know that an IRA does not allow a loan against it, while a 401k does. Given the fact that I am not planning for a major loan except the house and I think that would be the biggest loan if not the only one I have in the future, how should I factor this into my decision?

Would it be a correct statement to say that one should put money in a 401k until its time to borrow for a home loan, and then an IRA becomes a better option?

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    if you assume that borrowing from your 401k for the house is a good option, then yes. Which is not so sure.
    – Aganju
    Commented Jan 15, 2016 at 2:52

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I would not recommend borrowing your 401(k) money to buy a house for two reasons:

  1. When you borrow money from your 401(k), it is no longer invested. Yes, you pay yourself interest, but you miss out on the investment gains for the life of the loan.

  2. If you leave your job, the loan is due in full shortly thereafter. If you do not pay it back, you are hit with taxes and penalties.

If I were you, I would roll it over into an IRA for the reasons you mentioned.

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