Does it make financial sense to borrow against a 403(b) account for a first time home purchase?
“It seldom makes sense to borrow from a 403(b) account because the primary objective of such a plan is to provide funds for retirement, not house purchases or to fund college expenses,” said FPA member Michael Meara, CFP®. “It is a RETIREMENT account.”
If you don’t want to put your retirement at risk or set yourself back in the plans you have already made, FPA member Bob Vance, CFP®, says there are a few things to be aware of:
- You can borrow up to half of your vested balance or $50,000, whichever is less.
- The interest you pay goes back to your retirement fund, so you are paying yourself.
- The loan must be paid in five years.
- If you quit, are fired, or laid off, the loan may be due immediately which could be a real problem.
- The interest is not deductible.
- The money you borrow is no longer invested in your retirement fund.