Should I put my money into a 401K plan or into a savings for my down payment?

Asked by Christina, Santa Clara County, CA Fri Mar 26, 2010

I am looking to purchase a house in 2 years. My husband and I could max out our 401K plan by putting $23,000 combined per year into our 401K. Or we can take the $23,000 per year and put it into our savings for the down payment. What should I do, put the money into 401K or towards a savings for the down payment?

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Robert Chome…, , San Diego, CA
Wed Feb 8, 2012
You may look into if you have the type of 401k that allows you to take a loan against it. Then you could have you cake and eat it too...contribute to you 401k and later take a loan against for the down payment. Many 401k's allow to take a loan out on a certain % of the loan amount and you pay yourself back with the loan.
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Mellokitty, Home Buyer, San Francisco County, CA
Wed Feb 8, 2012
Try this:

Contribute up to company match in 401K
Max out on Roth IRA (pay tax now but won't have to later)
Save the rest and put it in Muni like someone mentioned below, look for CA bonds that could give you some state tax sheltering.

Goto and join the fun :)
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Nina Harris, Agent, Williston Park, NY
Fri Jan 20, 2012
Either or but if you are putting the money in a 401K you are at risk of having less than what you contributed due to the volatility of the stock market. And if you decide to go this route, you will be paying interest against this money athough you would be paying yourself back. Have you looked into putting this money in a CD and the rates available? If I were purchasing in the next 2 years, I would play it safe and put the money into a savings account or CD.

Good luck with your decision.
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Ruth and Per…, Agent, Los Gatos, CA
Fri Jan 20, 2012
Hi Christina:

401k investing and then borrowing against the 401K. Check with your company
most companies allow you to borrow against your 401K plan to come up with a
down payment.

Any questions do call me at 408-656-5343, also check:

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Michael Cheng, Agent, San Jose, CA
Thu Jan 6, 2011
You'll definitely need to check out if your employer matches contributions and/or if there are withdrawl penalties. Otherwise, the answer really depends on your current financial situation. If you are looking to buy a house in 2 years and you haven't saved anything for the downpayment, then clearly you should be holding the cash in some short-term CDs or money market funds. Your 2 year time horizon isn't long enough to ride out any riskier or longer-term investments, typical of 401K plans. If you have already saved a 25% downpayment, then you should just put the money into the 401K. If you're between 0 and 25%, your choice would depend on your projected cash flows in 2 years.
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Robert Lei, Agent, Cupertino, CA
Sun Sep 12, 2010
I would do a mixture of both. Employers usually only match up to a certain point. They won't match the entire $23,000. Find out how much your employers match and contribute up to that amount to your 401(k), then put what is left into a safe place to save up for your down payment.
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Louwu, , Irvine, CA
Sun Mar 28, 2010
Both good answers. You obviously will run into a withdrawl penalty, its best to ask what it is. If you have a penalty and no matching by your companies, then its best off investing in a taxexempt muni bond that adjusts for inflation. Those beat the pants off a savings account from a depository lender.

If you do get matching, but its not enough to offset what you would have made with the muni bond (you have to factor in the withdrawl penalty), then get the bond.

Very easy to calculate; we in the financial industry call this opportunity cost.


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Dan Chase, Home Buyer, Texas City, TX
Fri Mar 26, 2010
Does your employer match your 401k contributions? I would save that much and get the free money. Left over money can be used for a down payment.
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Anna M Brocco, Agent, Williston Park, NY
Fri Mar 26, 2010
Your tax professional will advise you best--if you decide the 401K route and plan on making a withdrawal when purchasing time arrives--check to see if early withdrawal penalties will apply--
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