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Ask Dave

Buying a House With 403(b) Money

Bryan wants to know if he should take advantage of a 403(b) withdrawal in order to buy a house. Dave wouldn't and walks him up the Baby Steps instead.

QUESTION: Bryan in Anchorage wants to know if he should take advantage of a 403(b) withdrawal in order to buy a house. Dave wouldn’t and walks him up the Baby Steps instead.

ANSWER: That doesn’t accomplish anything because the only money you can take out of there is what you’ve put in there. Any growth you’ve had on it has to stay in there. That’s basically a retirement plan, and I wouldn’t monkey around with a retirement plan to buy a house.

Instead, what I would do is make sure you have your emergency fund in place of three to six months of expenses, and of course you are debt-free to boot. The rest of the money we just pile up over in a money market account. It’s not going to earn you much money. It’s just a safe place to park the money to save as quickly as you can to buy something.

I think the problem is that if you start sticking money in mutual funds, and then the housing market is down six months later when you are ready to buy, then you’ve actually lost some money. That’s not the route I want to go. I will forego making money to keep it safe for this particular goal.

I would just go with a simple money market account to see how much money you can put in the cookie jar. If you reach a point where you feel like you have a window of five to 10 years, which means you are locked into a sweet deal that has a parsonage and you think you’re staying there, then you might want to move some of your money into a balanced or a growth and income stock mutual fund.

That is the most conservative category of the types of stock mutual funds that you can get into in terms of less volatility. It’s a little safer, but it will give you a lot better rate of return, but you really don’t want to fool with those. The market is setting records right now. It’s at the highest it’s ever been.

Does that mean it’s going down from here? Not necessarily. But as we witnessed two or three years ago, it can go down, and it’s pretty devastating when it does. Two or three years ago, if you had rode that market down and then back up, you’d be just fine. That’s why I say you need a five- or 10-year window to be messing with a growth stock mutual fund.