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My wife doesn't work anymore and she has a 401(k) of about $80,000 from an old job. I have been kicking around the idea of taking that money out or rolling into an IRA so that I can have better access to this money. Given the interest rates I want to purchase a new home and would like to leverage this money as a down payment if it makes sense. Thanks for the help.

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Unless that 401K has very low expense ratios on its funds, you should roll it into an IRA and choose funds with low expense ratios.

After rolling it over you should not take the 10% penalty and use it to purchase a home. Unless you use that home as an income property, it is unlikely to provide you more than a 1% inflation-adjusted rate of return given historical data. The S&P 500 is about 4% adjusted for inflation. And that money currently in your 401(k) is for your retirement - your future. Don't borrow against your future. Let compound interest do its work on that money.

The value of a house is in the rent you aren't paying to live somewhere and there are a lot of costs to consider. That doesn't mean don't buy. It just means buy wisely.

If you are currently maxing out your 401(k), you may consider cutting back to save for your down payment. Other than that I wouldn't touch retirement money unless it was a dire financial emergency.

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    Yeah.... don't take money out of an account at a 10% penalty if you can just not-put-money-back-in.
    – user296
    Mar 4, 2011 at 18:54
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Don't borrow from your future to live in the present.

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    Words that we all should live by.
    – duffbeer703
    Mar 4, 2011 at 22:52
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It's not your money. What does your wife think of this? You know, the withdrawal is subject to full tax at your marginal rate as well as a 10% penalty. That's quite a price to pay, don't do it.

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