Читать книгу Home Buying Kit For Dummies - Eric Tyson - Страница 39

Prior tax reforms have taken away some previously available tax write-offs, except for one of the best and most accessible write-offs: funding a retirement-savings plan. Money that you contribute to an employer-based retirement plan — such as a 401(k) or a 403(b) — or to a self-employed plan, such as a SEP-IRA, is generally tax-deductible. This saves you both federal and state income taxes in the year for which the contribution is made. Additionally, all your money in these accounts compounds over time without taxation. (Note: The Roth IRA retirement accounts are unique in offering no up-front tax break but allowing the tax-free withdrawal of investment earnings subject to eligibility requirements.) These tax-reduction accounts are one of the best ways to save your money and make it grow.

The challenge for most people is keeping their spending down to a level that allows them to save enough to contribute to these terrific tax-reduction accounts. Suppose that you’re currently spending all your income (a very American thing to do) and that you want to be able to save 10 percent of your income. Thanks to the tax savings that you’ll net from funding your retirement account, if you’re able to cut your spending by just 7.5 percent and put those savings into a tax-deductible retirement account, you’ll actually be able to reach your 10 percent target.

Generally speaking, when you contribute money to a retirement account, the money isn’t accessible to you unless you pay a penalty. So if you’re accumulating down-payment money for the purchase of a home, putting that money into a retirement account is generally a bad idea. Why? Because when you withdraw money from a retirement account, you not only owe current income taxes but also hefty penalties (10 percent of the amount withdrawn must go to the IRS, plus you must pay whatever penalty your state assesses).

So the dilemma is that you can save outside of retirement accounts and have access to your down-payment money but pay much more in taxes, or you can fund your retirement accounts and gain tax benefits but lack access to the money for your home purchase.

You can handle this dilemma in two ways. See whether your employer allows borrowing against retirement-savings-plan balances. And if you have an Individual Retirement Account (either a standard IRA or a Roth IRA), you’re allowed to withdraw up to $10,000 (lifetime maximum) toward a home purchase so long as you haven’t owned a home for the past two years. Tapping into a Roth IRA is a better deal because the withdrawal is free from income tax as long as the Roth account is at least five years old. Although a standard IRA has no such time restriction, withdrawals are taxed as income, so you’ll net only the after-tax amount of the withdrawal toward your down payment.

Because most of us have limited discretionary dollars, we must decide what our priorities are. Saving for retirement and reducing your taxes are important, but when you’re trying to save to purchase a home, some or most of your savings need to be outside a tax-sheltered retirement account. Putting your retirement savings on the back burner for a short time to build up your down-payment cushion is okay. Be careful, though, to purchase a home that offers enough slack in your budget to fund your retirement accounts after the purchase. Do the budget exercise in Table 2-1, earlier in this chapter!