“Anything that can go wrong, will go wrong.”
That is an old and witty saying – something that used to be called an “epigram.” This saying is connected to the phrase, “Murphy’s Law.”
No matter what you do or how you get ahead, the one thing that may hold you back or negate your progress will appear at the most inopportune moment.
I spent almost a decade renting apartments when I was younger. It pains me to reminisce and think about how much money I wasted renting when I could have invested in a home.
One thing that consoled me was the fact that home ownership was just too expensive, and I never made enough money.
As of last year, before the pandemic, the average cost of new home was $400,000.
The price of a new home as of April 2020 was $309.000.
Now, in the cruel new world of this post-pandemic landscape, home prices are as affordable as ever.
No one is buying homes.
According to data compiled by the National Association of Realtors, home sales fell by almost 18% in May 2020. That is the lowest decline in consumer home sales since July 2020.
If you want to buy a new home, now may be a great time to do it.
Also, if you own a retirement fund, there is a withdrawal stipulation that makes it easier to withdraw money for the sake of home ownership.
I am telling you about this because, as per the dictates of Murphy’s Law, I cashed out a small retirement I had years ago.
Now, I can’t take advantage of the very opportunity I’m telling you about.
Withdrawing From a Retirement Fund to Buy a Home
If you have an IRA or 401(k) plan, you can withdraw tens of thousands of dollars to buy a home. Or, pay a down payment on a new home.
The funds must be withdrawn for the purposes of building, rebuilding, or buying a first home.
Additionally, the 10% early withdrawal fee for those younger than 59 ½ is automatically waived.
If you have a Traditional IRA or Roth IRA, you can withdraw up to $10,000 from your account. Even though the 10% early withdrawal penalty is waived, you will still have to pay taxes on the money you withdraw.
However, if you own a Roth IRA the taxes would already have been withdrawn.
To qualify, you and/or your spouse cannot have owned a home within the past 24 months.
If you and your spouse own retirement fund accounts, you both may be able to collectively withdraw $20,000. Make sure you consult with your plan’s administrator.
Own a 401(k)? You may be able to take out as much as $50,000 for a new home. You’ll have to pay it back within 5 years.
Repayment terms for such withdrawals can be relaxed and/or extended according to your circumstances. Condition apply, so make sure to consult your plan’s administrator.
If you’re reading this, I hope you can make the most of this opportunity. If you know how the system works, you can make it work for you.
I didn’t know about any of this when it could have benefited me. And now, because of Murphy’s Law, there isn’t much I can do about it.
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Allen Francis was an academic advisor, librarian, and college adjunct for many years with no money, no financial literacy, and no responsibility when he had money. To him, the phrase “personal finance,” contains the power that anyone has to grow their own wealth. Allen is an advocate of best personal financial practices including focusing on your needs instead of your wants, asking for help when you need it, saving and investing in your own small business.
