Help decide: 403b loan or withdraw for duplex downpayment

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Topic Author
Bwlonge
Posts: 167
Joined: Wed Nov 22, 2017 6:36 am

Help decide: 403b loan or withdraw for duplex downpayment

Post by Bwlonge » Wed May 15, 2019 1:53 pm

On a duplex that will be at least a 30% COC return:
21k closing costs
17k savings/e-fund
20k IRA, 23k 403b

Trying to think through what will work in my favor. I will have maybe 10k in repairs and updates to do right away, so I don't want to deplete my savings.

I could wipe out my IRA, maybe replace half in 60 days, and take the 10% penalty + tax hit.
Or I could take a loan from the 403b up to 5 years @ 7.5%. I don't love the idea of having to pay it back with after tax money, then being taxed on it again when I retire and withdraw.

I need to run the numbers better, but is there enough info here for anyone to give me some advice?

bloom2708
Posts: 6077
Joined: Wed Apr 02, 2014 2:08 pm
Location: Fargo, ND

Re: Help decide: 403b loan or withdraw for duplex downpayment

Post by bloom2708 » Wed May 15, 2019 2:02 pm

How would you replace the IRA if you withdraw and pay the penalty?

I am not a fan of 403b/401k loans in general.

Can you afford this great deal? There are many great deals I simply can't afford because I do not have the money.

30% cash on cash? Too good to be true likely. Good luck!
"We are not here to agree with you; we are here to provoke thoughtfulness." Unknown Boglehead

Topic Author
Bwlonge
Posts: 167
Joined: Wed Nov 22, 2017 6:36 am

Re: Help decide: 403b loan or withdraw for duplex downpayment

Post by Bwlonge » Wed May 15, 2019 2:11 pm

bloom2708 wrote:
Wed May 15, 2019 2:02 pm
How would you replace the IRA if you withdraw and pay the penalty?

I am not a fan of 403b/401k loans in general.

Can you afford this great deal? There are many great deals I simply can't afford because I do not have the money.

30% cash on cash? Too good to be true likely. Good luck!
It's 30% because of the lowish down payment, 15%, and 8k in seller concessions. 2 family duplex 3bed/1.5br each, in a rural city (inexpensive to buy, solid/rising rents), good neighborhood, with new electric/heat/other systems. And sorry, 30% pretax.

But anyway.

I'd have 60 days to replace funds in the IRA to avoid tax/penalty. I'd be replacing via my salary- not sure yet how much I'd get back in there, gotta run that.

bloom2708
Posts: 6077
Joined: Wed Apr 02, 2014 2:08 pm
Location: Fargo, ND

Re: Help decide: 403b loan or withdraw for duplex downpayment

Post by bloom2708 » Wed May 15, 2019 2:15 pm

Bwlonge wrote:
Wed May 15, 2019 2:11 pm
bloom2708 wrote:
Wed May 15, 2019 2:02 pm
How would you replace the IRA if you withdraw and pay the penalty?

I am not a fan of 403b/401k loans in general.

Can you afford this great deal? There are many great deals I simply can't afford because I do not have the money.

30% cash on cash? Too good to be true likely. Good luck!
It's 30% because of the lowish down payment, 15%, and 8k in seller concessions. 2 family duplex 3bed/1.5br each, in a rural city (inexpensive to buy, solid/rising rents), good neighborhood, with new electric/heat/other systems. And sorry, 30% pretax.

But anyway.

I'd have 60 days to replace funds in the IRA to avoid tax/penalty. I'd be replacing via my salary- not sure yet how much I'd get back in there, gotta run that.
The limit for Traditional or Roth IRA (if you qualify) for 2019 is $6k. So you could (if you meet the requirements) put $6k back. You just can't put $20k back into an IRA (deductible, non-deductible or Roth). That was my point.

I guess the 403b loan is the easiest. Steep interest rate. Some risk for immediate repayment if your job goes away.
"We are not here to agree with you; we are here to provoke thoughtfulness." Unknown Boglehead

Topic Author
Bwlonge
Posts: 167
Joined: Wed Nov 22, 2017 6:36 am

Re: Help decide: 403b loan or withdraw for duplex downpayment

Post by Bwlonge » Wed May 15, 2019 2:19 pm

bloom2708 wrote:
Wed May 15, 2019 2:15 pm
Bwlonge wrote:
Wed May 15, 2019 2:11 pm
bloom2708 wrote:
Wed May 15, 2019 2:02 pm
How would you replace the IRA if you withdraw and pay the penalty?

I am not a fan of 403b/401k loans in general.

Can you afford this great deal? There are many great deals I simply can't afford because I do not have the money.

30% cash on cash? Too good to be true likely. Good luck!
It's 30% because of the lowish down payment, 15%, and 8k in seller concessions. 2 family duplex 3bed/1.5br each, in a rural city (inexpensive to buy, solid/rising rents), good neighborhood, with new electric/heat/other systems. And sorry, 30% pretax.

But anyway.

I'd have 60 days to replace funds in the IRA to avoid tax/penalty. I'd be replacing via my salary- not sure yet how much I'd get back in there, gotta run that.
The limit for Traditional or Roth IRA (if you qualify) for 2019 is $6k. So you could (if you meet the requirements) put $6k back. You just can't put $20k back into an IRA (deductible, non-deductible or Roth). That was my point.

I guess the 403b loan is the easiest. Steep interest rate. Some risk for immediate repayment if your job goes away.
Goootcha, I was misunderstanding the IRA replacement rules. Thank you!

JGoneRiding
Posts: 1631
Joined: Tue Jul 15, 2014 3:26 pm

Re: Help decide: 403b loan or withdraw for duplex downpayment

Post by JGoneRiding » Wed May 15, 2019 2:41 pm

I am assuming 21k isn't closing costs but rather the total needed to close (dp plus finance costs?)

The loan is a better idea then the IRS raid because at least you know for sure you have to pay it back so it maintains retirement space. Also you are NOT paying taxes twice and the "interest "is paid to yourself of course so sort of a good deal there!

Sounds like a great rental but if you don't have the money you just don't

I have also done personal loans to get money for rentals. Need a way to pay back fast as the interest rate is high but usually easy to get and quick.

JGoneRiding
Posts: 1631
Joined: Tue Jul 15, 2014 3:26 pm

Re: Help decide: 403b loan or withdraw for duplex downpayment

Post by JGoneRiding » Wed May 15, 2019 2:42 pm

Bwlonge wrote:
Wed May 15, 2019 2:19 pm
bloom2708 wrote:
Wed May 15, 2019 2:15 pm
Bwlonge wrote:
Wed May 15, 2019 2:11 pm
bloom2708 wrote:
Wed May 15, 2019 2:02 pm
How would you replace the IRA if you withdraw and pay the penalty?

I am not a fan of 403b/401k loans in general.

Can you afford this great deal? There are many great deals I simply can't afford because I do not have the money.

30% cash on cash? Too good to be true likely. Good luck!
It's 30% because of the lowish down payment, 15%, and 8k in seller concessions. 2 family duplex 3bed/1.5br each, in a rural city (inexpensive to buy, solid/rising rents), good neighborhood, with new electric/heat/other systems. And sorry, 30% pretax.

But anyway.

I'd have 60 days to replace funds in the IRA to avoid tax/penalty. I'd be replacing via my salary- not sure yet how much I'd get back in there, gotta run that.
The limit for Traditional or Roth IRA (if you qualify) for 2019 is $6k. So you could (if you meet the requirements) put $6k back. You just can't put $20k back into an IRA (deductible, non-deductible or Roth). That was my point.

I guess the 403b loan is the easiest. Steep interest rate. Some risk for immediate repayment if your job goes away.
Goootcha, I was misunderstanding the IRA replacement rules. Thank you!
No you have 60 days to return funds rollover. There is a yearly limit to this. For IRA not ROTH

Regattamom
Posts: 171
Joined: Sat Jan 06, 2018 3:40 pm

Re: Help decide: 403b loan or withdraw for duplex downpayment

Post by Regattamom » Wed May 15, 2019 9:34 pm

Are you confident you can afford this opportunity? Your savings are low. What happens if you have an unexpected repair? Or tenant doesn't pay for months?

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