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View Poll Results: Should I just transfer the pension to an IRA and borrow against the IRA?
No, use the pension cash you're young (32yo) 0 0%
Yes, save on the penalty and have a higher monthly payment 0 0%
No, You can not borrow against a new IRA for a down payment and cash reserves 0 0%
There is a better way, lets talk. 0 0%
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Old 09-09-2015, 10:34 AM
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Exclamation Cash out Pension for Down Payment on Home

I am anticipating changing jobs in the coming days. I currently have a pension valued at about 30K. I would like to purchase a new home and use my pension money for a down payment. Will there be any consequences (tax and penalties)?
The new home will be my primary residency but I do currently own a 2-family.
I am assuming that mortgage rates will start to climb once the FED raises interest rates.



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Old 09-09-2015, 06:49 PM
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I am anticipating changing jobs in the coming days. I currently have a pension valued at about 30K. I would like to purchase a new home and use my pension money for a down payment. Will there be any consequences (tax and penalties)?
==>what particular retirment acct do you mean? There are many different types of pensions, including defined benefit plans, defined contribution plans, as well as several others 401K or IRA or other pension plans?? in certain circumstances, it may be a reasonable; This approach has plenty of pros and cons, and you’ll want to consider it carefully before moving forward. but in general, it’s not a good idea, since you’ll need those funds for retirement and you could end up paying a heavy tax price. it’s simply too costly. The distribution will be taxed as ordinary income at federal rates up to 35%, there are state income taxes to fork over, and there’s usually a 10% federal penalty too. Since your withdrawal will be taxed, you need to try to time the withdrawal and the home purchase early in the year. That way, you’ll maximize the mortgage-interest deductions SCh A of 1040 for the year, offsetting some or all of the extra income. any points you pay on the initial mortgage to buy a home are deductible in the first year.
You can you use your IRA money to buy a home and in some cases you can do so penalty-free. If your employer and the plan permit,this is not your case but first-time buyers can take advantage of the hardship rule of early IRA withdrawal


The new home will be my primary residency but I do currently own a 2-family.
I am assuming that mortgage rates will start to climb once the FED raises interest rates.
=======>I guess the new home will NOT be your primary residency unless you sell the current home.



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Old 09-09-2015, 09:19 PM
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Join Date: Sep 2015
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thank you Wnhough

=======>I guess the new home will NOT be your primary residency unless you sell the current home. (No I am transferring my existing 2-family to an LLC as a rental the new home will be the primary (owned by my wife) the current will be an income property)

My pension is defined benefit plan. I get 64% of my highest 3 years if I work 32 years and have a combined age and years of service at time of retirement of 85.

So there is a 10% penalty plus I need to pay income tax.

That penalty is still significantly less than the additional interest I will pay by waiting 1 year (assuming the Fed is going to raise rates)



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Old 09-10-2015, 12:05 AM
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Quote:
Originally Posted by bjkrukowski View Post
=======>I guess the new home will NOT be your primary residency unless you sell the current home. (No I am transferring my existing 2-family to an LLC as a rental the new home will be the primary (owned by my wife) the current will be an income property)

My pension is defined benefit plan. I get 64% of my highest 3 years if I work 32 years and have a combined age and years of service at time of retirement of 85.

So there is a 10% penalty plus I need to pay income tax.

That penalty is still significantly less than the additional interest I will pay by waiting 1 year (assuming the Fed is going to raise rates)
(No I am transferring my existing 2-family to an LLC as a rental the new home will be the primary (owned by my wife) the current will be an income property)
=======>>Ok I see sorry my bad;as you can see, principal residence is the home in which a person lives most of the time, whether he owns it or rents it.



My pension is defined benefit plan. I get 64% of my highest 3 years if I work 32 years and have a combined age and years of service at time of retirement of 85.=>Sorry, I do not know much about it as I am not a retirement plan expert; however,one of the two Employer-based plans is defined benefit plan that is An employer-sponsored retirement plan where your retirement benefits are sorted out based on a formula using factors , i.e., salary history and duration of employment or your age or etc.the plan ,UNLIKE defined contr plan, provide a fixed, pre-established benefit for employees at retirement. In general, you hardly fork over any of your paycheck to participate in a defined benefit plan, but your employer does


So there is a 10% penalty plus I need to pay income tax. =========>>>as you can see, cashing out or withdrawing from the R-IRA, I f you have the acct, is probably the best choice since R-IRA contributions are made after-tax monies,so, as you've already paid some of the tax. However, ASLONGAS you cash out an individual retirement plan such as a traditional IRA, you'll have to pay reg income taxes to IRS/ your state on all of your withdrawal, which could be substantial if the withdrawal is large. In both cases, you'll be subject to a 10 % early withdrawal penalty if you are younger than age 59 1/2.If you withdraw from yoru 401K plan, then, You will ALSO owe income tax on the amount you withdraw, just as you would had you withdrawn it in retirement. Remember, income taxes are due on all retirement plan distributions at any age, even hardship distributions(for medical purposes or etc) reported on Form 1099-R..


That penalty is still significantly less than the additional interest I will pay by waiting 1 year (assuming the Fed is going to raise rates)=====> Perhaps butI guess Hard to see if the Fed’d raise discount rate in the near future. No idea.



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