Using 401k money to purchase real estate while in chapter 13

[diegodog]

Hello All,



What are the general rules on cashing out your 401k in the middle of a chapter 13 to buy real estate (no loan).

Furthermore if one was to lose thier job and need to convert to a chapter 7 from a chapter 13 would that asset then be up for grabs? Not sure if they relook at assets if you convert to a 7.

This is in PA.

Thanks

[AngelinaCatHub]

BAD IDEA.

Would you sell your future for a house? Don't do this. Not only is there an IRS penalty, but you will end up paying a lump sum tax in a single year that may bring your income up to the highest amount. Read all the stickies on the 13 and 7 or better yet do a search on your idea and you will get this answer; don't be a fool. Also, when you convert your 401K to personal money, yes it will become income to you as you have paid that tax, and it is available to you to spend. DON'T DO IT. You must inform your Trustee and he will take it to pay your creditors and in 7 yes, you won't be going to 7 either. DON'T DO IT. 'Hub

[HHM]

Whoa, we need entirely more background before any meaningful insight could be given?

1. Do you have a lawyer
2. What is the purpose of buying the real estate
3. Why would you quite your job.
4. etc etc.

[diegodog]

Whoa, we need entirely more background before any meaningful insight could be given?

1. Do you have a lawyer
2. What is the purpose of buying the real estate
3. Why would you quite your job.
4. etc etc.

Hey thanks for the response.

Yes I have a lawyer but have not gone in to talk to him about this yet.

Purpose is to live on it. I am in the city and want rural land as I am in the camp this country has some serious issues that may erupt.

Not quiting. Getting laid off. I work for a healthcare company. Prob just a matter of time.

[diegodog]

BAD IDEA.

Would you sell your future for a house? Don't do this. Not only is there an IRS penalty, but you will end up paying a lump sum tax in a single year that may bring your income up to the highest amount. Read all the stickies on the 13 and 7 or better yet do a search on your idea and you will get this answer; don't be a fool. Also, when you convert your 401K to personal money, yes it will become income to you as you have paid that tax, and it is available to you to spend. DON'T DO IT. You must inform your Trustee and he will take it to pay your creditors and in 7 yes, you won't be going to 7 either. DON'T DO IT. 'Hub

Thanks for the response. I completly understand the do's and dont's of the 401k. I have a bit of a different view which includes hyper inflation from fed printing to much money so to me that money is going to be worthless anyways. Right or wrong I have no idea.

But totally from the legal perspective.

- In a chapter 13 can I take out a 401k loan / 401k withdraw and buy the land?

- If I can and then lose my job and have to move to a chapter 7 does that purchase come into play? Will have have to go through all my assets again if I do have to convert to chapter 7?

Thanks!!

[kornellred]

401K plans are valuable only insofar as they are utilized for their primary purpose as tax sheltered retirement savings. Cashing out before retirement means you are going to pay income taxes on the full amount PLUS a hefty tax penalty. You can only take out what you personally put in - any company contributions are going to stay put.

Once the money is in your account it is an asset. When in Chapter 13, you are going to need the trustee's approval to do anything with the 401K proceeds.

[hereforinfo]

If I can and then lose my job and have to move to a chapter 7 does that purchase come into play? Will have have to go through all my assets again if I do have to convert to chapter 7?

Thanks!!

Yes. You would most likely lose the land and the funds would be used to pay your creditors. How much are we talking about, and do you know what the exemption amounts are for your state? Since it's just land the homestead wouldn't apply.

[CindyLou]

The income from cashing out the 401k could keep you from being able to convert to a 7. Whether you lose the property or not would depend on whether you state has good homestead exemption. Just don't do anything until you speak with an attorney. And yes, all the paperwork will be to be resubmitted when converting so you would have to declare the income as well as the new asset.

[AngelinaCatHub]

Thanks for the response. I completly understand the do's and dont's of the 401k. I have a bit of a different view which includes hyper inflation from fed printing to much money so to me that money is going to be worthless anyways. Right or wrong I have no idea.

But totally from the legal perspective.

- In a chapter 13 can I take out a 401k loan / 401k withdraw and buy the land?

- If I can and then lose my job and have to move to a chapter 7 does that purchase come into play? Will have have to go through all my assets again if I do have to convert to chapter 7?

Thanks!!

I completely understand your view. Like you I too am a "Survivalist" and know how to live off the land. However as in Germany's Wiemar Republic YOU would cause your own hyper-inflation just by withdrawing an exempt account. Once your hands are on the tax paid money, it is a non-exempt asset and will be taken from you either on a 13 or 7. Best to wait for that 7, get discharged and closed and then make the mistake of screwing up your retirement funds. Not knowing what state you are in, raw land is very cheap now. People can't give it away. I saw a piece of land with a 30K sign on it that stated scratched through 30 and 15K cash. You can't beat a 50% reduction in price.

Find a piece of land, go contract for Deed, and if your state allows put a camper on it and call it your homestead. You would have to establish it and live at it for at least some of the week and for six months. 'Hub