Getting Personal
Tess Vigeland and Economics editor Chris Farrell answer pressing questions from listeners about borrowing from a 401K, how to buy life insurance, and how life insurance companies are regulated by the state.
Getting Personal (Marketplace)
Links
- Audio: Part 2
Each week on Marketplace Money, host Tess Vigeland looks at the week's major national and international stories that will impact the average listener's wallet.
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From Waltham, MA, 03/30/2009
Dear Marketplace Money Staff,
I will be attending my first year of a graduate school Masters program this coming fall. The Economic stimulus package promises to help out students going to college, but what about grad school? Is there anything in it for me?
Sincerely,
Nick
From Boston, MA, 03/28/2009
Dear Marketplace Money staff,
I work for a company that provides a matching contribution toward my 401K retirement plan, which I just started to participate in. The employer match becomes vested (i.e. my money to keep) after 5 years. In addition to saving for retirement through the 401K, I am also trying to save for a future down payment on my first home purchase. I am finding it hard to save for both retirement and the down payment, but I have an idea that I think may solve the problem.
My question is: Since I can borrow against my 401K without penalty to purchase a home, doesn't it make more sense to designate a particular fund in my 401K (like a money market fund) to save for my down payment, instead of just using a comparable after-tax savings account outside of the 401K plan?
My logic is two-fold: First, by using the 401K as my way of accumulating the down payment instead of a savings account outside of the 401K, I would still get the benefit of my employer’s matching contribution. Even though the non-vested amount of my employer’s matching contribution is not eligible to borrow against, it is still ‘free’ money that will be earning interest toward my long-term retirement goals. And at the same time, I’m achieving my short-term goal of accumulating a down payment to purchase a home. The second part of my logic is: Unlike a regular savings account, my 401K contributions are tax-deductible, which also increases the benefit of using my 401K for the down payment.
Best regards,
Darrell
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