A friend (40) just told me he is planning on taking almost his entire retirement account balance ($50K) out to purchase a $140K house with his girlfriend (53). He and the girlfriend have been living together about 2 years. His name is still on the mortgage for the house he and his ex-wife purchased about 10 years ago. He lives in Texas, so his girlfriend could be considered his "common law" wife. She does not have a regular job, just does gig work like Uber. She moves from job to job and does not have any money saved up to go towards purchase. This house is definitely a "fixer upper", but my friend is really not the "fixer upper" type. His girlfriend insists she can do all the work herself.
Here are my concerns:
1- He claims he will not be subject to income tax on the $50K because he is using to buy a house. My research indicated because he is still on the mortgage from his house with his ex-wife, he would not qualify as a "first time home buyer" for IRS rules AND I even if he did qualify that would only be subject to a withdrawal of $10K or less.
2- He claims he will not be subject to the 10% penalty to the IRS for withdrawing prior to age 59 1/2 for the same reason as listed above.
3-He is not planning on holding back any money to pay the income tax and penalty because he does not believe he will owe it.
4- The $50K will lower the payments to around $800 and they are currently paying $1050 in rent.
5- He is making no plans to reimburse his retirement account!!
My concern for him is that he is about to make a huge mistake!
original posted by kmcg2020 to r/personalfinance on Wed, 28 Feb 2024 13:59:04 GMT.