Charlotte man says ex wants him to cash out his 401(k) for a home, but Ramsey Show says she’s ‘full of crap’

Should you currency retired your 401(k) to bargain a home?

Raiding your status savings whitethorn look similar a no-no, but Ryan from North Carolina precocious called The Ramsey Show to accidental he’s reasoning astir doing precisely that (1). His reason: His ex-wife utilized the stock of his 401(k) she got successful the divorcement to bargain a home, past sold it for a coagulated nett and utilized that wealth to bargain a 2nd property. Now she’s urging him to bash the same, saying existent property volition outperform the banal market.

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Ramsey and co-host George Kamel responded with a steadfast no. Their reasoning went beyond the risks of the lodging market. Cashing retired a 401(k) comes with dense penalties, taxes and a large nonaccomplishment of compound growth.

Here’s the breakdown connected wherefore sacrificing your aboriginal for a location contiguous is usually mediocre readying and whether determination are immoderate situations wherever tapping your status savings makes sense.

“Why would anyone inquire their ex-wife for fiscal advice?” Ramsey joked, adding helium was “so confused” by Ryan’s reasoning.

Ryan’s concern was besides much precarious than it sounded. While it mightiness look similar helium had a ample equilibrium to see cashing out, helium told the hosts helium has lone $85,000 successful his 401(k) contempt earning $130,000 a twelvemonth astatine property 50. That puts him good down the emblematic savings people for his age, which is astir six times his income, and beneath the mean 401(k) equilibrium for his property group, which is $313,220, according to Edward Jones (2, 3).

Ramsey didn’t mince words astir the risks of pulling wealth from a status relationship to bargain a home.

“When she cashed retired fractional of that 401(k), she got charged a 10% punishment positive her taxation rate. She borrowed that wealth astatine 35% interest,” Ramsey said. “By the clip she flipped that location and made money, she didn’t adjacent marque money.”

When Ryan pushed back, saying helium saw what she made from the sale, Ramsey chopped him off.

“You didn’t spot each the penalties and taxes she paid connected the anserine withdrawal from the 401(k) that negated immoderate nett she made connected the flip,” Ramsey said. ”She’s truthful afloat of crap, she’s a Christmas turkey.

“If you currency retired your money, they’re going to complaint you a 10% punishment positive a 25% taxation rate,” helium added. “That’s similar saying, ‘Dave, I privation to get astatine 35% involvement to bargain a house.’ Please don’t bash that.”