When you’re in the process of saving up for a down payment (20k-100k)... what do you do with the funds?
1. High yield savings account the whole time
2. Invest in conservative stocks/bonds, withdraw when needed
3. Some combination of 1 & 2
4. Other - please explain!
Curious to see how others choose to invest (or not invest)!
Great question Bret!
Checking account for me but I'll also borrow against my 401k when needed.
Here are the general considerations regarding 401k loans.
401k Participant Loans
- If your 401k plan allows for 401k participant loans, the maximum loan amount is equal to 50% of the balance up to $50k. The repayment terms for a 401k participant loan are equal monthly/quarterly payments of principal and interest (typically prime plus 1%) over a 5 year term (longer if used to acquire your principal residence).
- Please note that if you take a full $50,000 and then pay back the loan, you can't take another $50,000 until 12 months after the first loan was fully paid back.
- Per the loan offset rules that went into effect with the 2018 Tax and Job Act: if you leave your job and the loan is current at the time you leave your job but then the loan goes into default because you left your job, you will have until your tax return deadline (including any timely filed extension) to make the loan current by depositing the outstanding balance into an IRA (and thereby avoid the taxes and penalties that would otherwise apply).
Please keep in mind the multiple loan rules:
Under those rules, the sum of the balances of a participant's outstanding 401k loans under a single 401k plan (using the highest outstanding balance of each loan over the last 12 months) can't exceed 50% or $50,000 whichever is less. Thus, if you took a $50,000 loan and paid it back within 6 months, you would need to wait another 6 months before you could take another $50,000 loan.