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Question for the Money Doctors

Question submitted on Mar 17, 2011.

Question

I am using a loan on my 401k for a down payment on a condominium in Florida (where I am planning to relocate). I would like to take the loan for a term of 20-years but while attempting to initiate the loan I was asked whether this was for my primary residence. I am planning to move to this property within the next 18 months, but wish to purchase it now due to a good opportunity. Can I take the loan for 20 years since this will be my primary residence shortly or must I take it for only a five-year period (which is for all other loan types)?

Answer

The plan''s definition of primary residence is quite clear, and to claim otherwise could lead to a taxable distribution. 

I think you have two choices relative to your 401K plan.  You can apply for a 5 year loan or take a taxable distribution from your plan if the plan and your current age provides for "in service distributions".

Other options include borrowing against your present home, which is called a bridge loan, or borrowing against life insurance cash value. 


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