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Dear Liz: My husband is 30 and I’m 28. We were told the importance of contributing to our retirements and so now have $58,000 saved. We have an additional $65,000 saved for a down payment. Due to my son’s recent liver transplant, I won’t be able to work for an indefinite amount of time, so we are reduced to one income of about $60,000. We have to move to get into a better school district and can’t decide what to do. We’re currently looking at homes in the $200,000-to-$250,000 range. My husband wants to use my $38,000 retirement savings (which would be $30,000 once taxed) to get into a home with a lower payment that will not require me to work. I’m scared to do this since everyone preaches retirement, but at this rate we won’t have a mortgage when we retire. Plus, who wants to be a millionaire at 60! I want to enjoy life while we’re young and our kids are young. We are very disciplined but just don’t know what to do. Thanks!

Answer: You can enjoy life and still refrain from doing stupid things that will jeopardize your retirement.

And tapping retirement funds early is typically pretty stupid. You’re giving up all the future tax-deferred returns that money could have earned. By the time you’re 60, that $38,000 could have grown to nearly $450,000.

You also may be underestimating the tax bite. You can withdraw up to $10,000 from an individual retirement account for a first-time home purchase, but the remainder of the withdrawal will be penalized at a 10% federal rate, plus whatever penalty your state assesses. The entire withdrawal will be taxed at your current income tax rates.

The taxes and penalties are substantial for a reason: You’re supposed to leave this money alone. Since you probably won’t be able to contribute to a retirement account for a while, it’s even more important not to squander these funds.

Besides, the extra $30,000 would lower your monthly payment by about $160 on a 30-year fixed-rate mortgage at 5%. That doesn’t seem like much of a payoff considering what you’d be giving up.

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Categories : Q&A, Real Estate, Retirement