A reader
sent in this question:
Hello
George – I have been trying to get to bottom of a question in layman's terms
involving 403(b) and real-estate investment.
My wife
and I have a 403(b) and would like to buy a condo in So FL. Can we do so using
the 403(b) without penalties and/or taxes etc. We not at retirement age yet; 59
for me and 55 for her.
Please
advise... Thank you very much for your time... S.D.
And my
reply:
Hi S.D,
Generally
if you withdraw money from a 403(b) plan you will pay ordinary income tax on
the distribution. On top of that, if you are under 59½ you will face a 10%
penalty.
If it does allow early withdrawals, it must provide the specific rules used to determine the hardship.
For example, a plan may provide that a distribution can be made only for medical or funeral expenses, but not for the purchase of a principal residence or for payment of tuition and education expenses.
I suggest
you check with your plan’s administrator to see if there is a provision for
buying a home. Usually, though, when such a provision exists, it is only for
the first-time purchase of a primary residence — not a vacation or rental
property.
You can
read more about withdrawals from retirement plans here: http://www.irs.gov/Retirement-Plans/Retirement-Plans-FAQs-regarding-Hardship-Distributions
So if I were
you, I would not take this money out of your 403(b).
Have you
looked into getting a mortgage? With interest rates extremely low, you might
consider it.
Good luck,
George
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