Loan(s) from Qualified Retirement Plans for Married Filing Jointly

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NeedSomeAdvice
Posts: 12
Joined: Mon Sep 24, 2012 10:32 pm

Loan(s) from Qualified Retirement Plans for Married Filing Jointly

Post by NeedSomeAdvice » Mon Sep 17, 2018 5:21 pm

I've searched in depth for an answer to my particular situation, but I haven't found an adequate solution. I'm hoping the esteemed members of Bogleheads can help me out.

In the next month or two, I am considering the purchase of a new home that will become my principal residence. I plan to sell my current principal residence in the spring, ideally, in a more competitive market. The home equity built up in my current home is more than enough to cover the down payment on my next home, but I will not have that cash for about six months after closing on the new home.

Both my wife and I have separate qualified retirement plans (401k for me, 403b for her) with over $100k in assets in each plan. I understand that plan administrators may offer a loan on plan balances equal to the less of $50k or half the plan balance. In both of our cases, this would equate to $50k a piece. Both of our administrators offer these loans, and I believe we can choose a loan maturity of up to 15 years as we are using the funds to purchase a principal residence.

My question is whether or not we can both take out $50k loans in order to borrow $100k in total. All the commentary on the IRS website revolves around an individual borrowing up to $50k, nothing in regards to a married couple filing jointly trying to borrow a total of $100k. Does anyone have any experience or insight here that could help?

Also, I'm certainly familiar with the downsides of my approach (dangerous to buy the next home before selling my current home, forced early repayment of the loans if we change jobs, cash removed from investment options in the retirement plan/loss of return, etc.). No need to address those issues.

Thanks very much for the help!

bloom2708
Posts: 4797
Joined: Wed Apr 02, 2014 2:08 pm
Location: Fargo, ND

Re: Loan(s) from Qualified Retirement Plans for Married Filing Jointly

Post by bloom2708 » Tue Sep 18, 2018 1:18 pm

Each of your plans are completely separate. Individually owned. You can both borrow $50k. So, $100k will allow you to buy your new house and keep your old house? Are you certain you qualify for both mortgages even if the $100k covers the 20% down payment on the new house?

I still have no idea why you would keep your current house for 6 months. You can't rent it for that period. One will sit empty. You, I, nobody has any idea what the housing market will look like next spring. Equally as hard to predict as the stock market. What if "the market" implodes in November and takes the housing market spiraling with it?

Have you talked to a realtor? I would at least try to sell your house or investigate "the market" in your area. Either that or hold off until spring. "House fever" is catching. Similar to "car fever". :wink:
Where to spend your time: | 1. You completely control <--spend your time here! | 2. You partially control <--spend your time here! | 3. You have no control <--spend no time here!

NeedSomeAdvice
Posts: 12
Joined: Mon Sep 24, 2012 10:32 pm

Re: Loan(s) from Qualified Retirement Plans for Married Filing Jointly

Post by NeedSomeAdvice » Tue Sep 18, 2018 1:54 pm

Thanks for your first comments on the loans. Do you have any rulings/commentary to back that up?

Regarding the rest of your post - I understand the risks involved. I also don't think it's far-fetched to have a general expectation of what the housing market will look like next spring. Historically, home prices increase during the spring selling season. It's a pretty basic tenet of real estate. Of course anything can happen any given year, but it's a decent bet to make that prices will be higher in the spring than they are in the preceding fall. The market could implode, but that's a risk I'm willing to take. In addition, my specific area has had stark differences in selling prices between the fall and spring over the last five years (greater than 10%). It'd be silly to ignore that.

I've spoken to a lender - we're pre-approved on a purchase of a sizable amount. And, I've spoken to our realtor who agrees with the selling approach. The $100k will be used alongside cash savings for a down payment.

Really just looking for confirmation on the two separate loans.

bloom2708
Posts: 4797
Joined: Wed Apr 02, 2014 2:08 pm
Location: Fargo, ND

Re: Loan(s) from Qualified Retirement Plans for Married Filing Jointly

Post by bloom2708 » Tue Sep 18, 2018 1:59 pm

NeedSomeAdvice wrote:
Tue Sep 18, 2018 1:54 pm
Really just looking for confirmation on the two separate loans.
The only way to know for your specific plans is 1) you call/contact your 401k administrator. 2) your wife calls her 401k administrator.

What sort of cross-401k rule are you thinking would prevent either of you from borrowing from your 401k?
Where to spend your time: | 1. You completely control <--spend your time here! | 2. You partially control <--spend your time here! | 3. You have no control <--spend no time here!

NeedSomeAdvice
Posts: 12
Joined: Mon Sep 24, 2012 10:32 pm

Re: Loan(s) from Qualified Retirement Plans for Married Filing Jointly

Post by NeedSomeAdvice » Tue Sep 18, 2018 2:01 pm

I'm not worried about the administrators. They both offer the loans. I'm worried about the IRS declaring the second $50k loan as a deemed distribution that we would owe tax on and be penalized 10%.

Flyer24
Posts: 286
Joined: Sun Apr 08, 2018 4:21 pm

Re: Loan(s) from Qualified Retirement Plans for Married Filing Jointly

Post by Flyer24 » Tue Sep 18, 2018 2:39 pm

FYI. Standard insurance policies only allow a home to be unoccupied up to 60 days. You will need to get special coverage. I ran into this problem on a previous house. My insurance (Nationwide) dropped my coverage when the house became empty. Their reasoning is a home is more subject to vandalism when empty.

NeedSomeAdvice
Posts: 12
Joined: Mon Sep 24, 2012 10:32 pm

Re: Loan(s) from Qualified Retirement Plans for Married Filing Jointly

Post by NeedSomeAdvice » Tue Sep 18, 2018 2:40 pm

Thanks Flyer24 - that's interesting and good to know. I appreciate it.

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