use 401k, 403 and RRSP to buy a house in USA

[lovegem]

We are at the planning stage of buying a house in the States.

For those who don''t know, RRSP is a retirement plan for people who work in Canada. First time home buyers in Canada can use $20k of their RRSP money to buy a house without paying tax when you withdraw the money.

Anyway, bf worked in Canada before, so he has RRSP. He is in US now. He has both 401k and 403. Is there anyway we can utilize the money in 401 and 403 to buy a house without paying tax upon withdrawal? We are first time home buyer.

For those who lived in Canada now moved to US may know my next part of the question. Is it possible to use the RRSP money to buy a house in US without paying high tax when withdrawing money from the RRSP account?

 

[phoenixgirl]

If there are loan provisions in your plan document, you can take out a loan from your 401k (and 403b, I think), which you must pay back obviously (failure to do so makes the loan turn into a distribution, thus becoming taxable). Contact your 401k provider for details.

I asked my husband to answer your question while sitting here watching Flight of the Conchords, so please get some professional advice on what is best for you and your financial needs.

Good luck!

 

[Loves Vintage]

Regarding your second question, you may want to review this website: http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/rrsp-reer/hbp-rap/menu-eng.html for more information about the Home Buyer''s Plan. I think this is what you referenced in your post. A qualifying home is defined as a home in Canada.

Regarding your question about borrowing money from retirement plans in general, one of the things you should consider is whether your money would be better left in the retirement accounts. Mortgage rates are still extraordinarily low. You might be better off financing a greater percentage of the home (especially if you qualify for a first time home buyer loan) and keeping your money invested.

Lots of investment advisors caution against borrowing against retirements funds for a home purchase. I am not an expert in this field at all. You may wish to google for this advice.

Good Luck!

 

[~*Snow*~]

LoveGem: Another thing to considere to if you are going to take out your boyfriends RRSP's is that you have to pay them back. So on top of your mortage you'll have another monthly payment. And it's really not worth it. Save a few extra dollars now and avoid having to tack on yet another payment when you own your own home, you'll have enough of them as it is.

 

[Allison D.]

Date: 7/20/2008 8:30:55 PM
Author:lovegem

He is in US now. He has both 401k and 403. Is there anyway we can utilize the money in 401 and 403 to buy a house without paying tax upon withdrawal? We are first time home buyer.

Not if you withdraw. If you make a withdrawal, it''s subject to the 10% penalty (see below in blue).

If you take it as a loan (meaning you will pay that back while also paying the mortgage), then it''s not a withdrawal and therefore not subject to penalty.

Does your BF have a Roth IRA? If so, you are allowed to take up to $10,000 as a first-time home buyer without penalty from that type of account.

http://www.401khelpcenter.com/401k_education/hardship_withdrawal_article.html
401K withdrawals:
Congress made provisions in the 401k rules to allow plan withdrawals in a limited number of hardship situations. These include:
*Un-reimbursed medical expenses for you, your spouse, or dependents.
*Purchase of an employee''s principal residence.
*Payment of college tuition and related educational costs such as room and board for the next 12 months for you, your spouse, dependents, or children who are no longer dependents.
*Payments necessary to prevent eviction of you from your home, or foreclosure on the mortgage of your principal residence.
*For funeral expenses and repair of a primary residence.

But to discourage these early hardship withdrawals, in most all cases the IRS imposes a hefty financial penalty including a 10 percent early withdrawal penalty if you are younger than 59 1/2.

You may qualify to take a penalty-free withdrawal if you meet one of the following exceptions:

*You become totally disabled.
*You are in debt for medical expenses that exceed 7.5 percent of your adjusted gross income.
*You are required by court order to give the money to your divorced spouse, a child, or a dependent.
*You are separated from service (through permanent layoff, termination, quitting or taking early retirement) in the year you turn 55, or later.
*You are separated from service and you have set up a payment schedule to withdraw money in substantially equal amounts over the course of your life expectancy. (Once you begin taking this kind of distribution you are required to continue for five years or until you reach age 59 1/2, whichever is longer.)

 

[lovegem]

Thanks guys. Your info is very useful. We may make good use of the loan provision from 401.

He is not doing very well investing the retirement money. For 6 yrs, the total return is 2%. He diversified it to mutual fund and GIC. It is the GIC that keeps him above water

. With the housing market going down now, it may be a better investment than his retirement plans.

Both bf and I have relatively stable jobs, we should have no problem paying back both loans (mortgage and retirement loan) in a relatively short time. Really, the option is open. 1. We can wait to the end of next yr then we will have 20% down and have some buffer. 2. use the retirement money and have 20% down now with little or no buffer. It all depends whether we have stumble upon the right house and right price.