Buying from a 401K

[Shipscarver]

Anyone have experience buying a boat using money from a U.S. traditional 401K plan?
I am now retired, and just turned 67, so pre-withdrawal penaty is not a problem. The issue is the U.S. Income Tax due on the money to be taken out of the IRA to buy the boat. Figure 25% of the purchase price payout would be the income tax Uncle Sam would want for the withdrawal. That smarts! I not only have every one saying I'm crazy for buying a sailboat to live on at my ancient age (67), but Uncle Sam will make it more painful!
............Shipscarver

[Steve Rust]

You will have to pay tax on the withdrawal no matter what you spend it on with a few exceptions. The potential problem I see is if the amount you take out in a lump sum bumps you up into a higher tax bracket. You may be able to take advantage of "income averaging" to spread it out over a few years. It is a way the IRS allows people who's income varies widely from year to year to average it out and hopefully get into a lower tax bracket. Consult your financial adviser or tax preparer.

[opsailor]

Why not borrow the funds and then use income from the 401K to make the payments. If you already itemize, you can deduct interest expense for a second (or first) home, and reduce the tax effect.

[Charlie]

I agree with opsailor. Borrow money from your 401k.(yourself) Then pay the loan back to the 401K. You will need to find a company to handle the transaction but if you google it I'm sure you will be able to find one Here is a link to a self directed 401K. this allows you to loan money to yourself for various purposes. I am not recomending this company I am just pointing you in a direction. http://www.nafep.com/onek/self_directed_401k_public.htm

[Liberty28]

Interest paid to yourself from a 401K loan is not tax deductible. I was under the impression that income averaging disappeared a few years ago. Hopefully, 67 is not that old. Damn the torpedoes (and critics) and buy the boat (assuming it's not every penny in the account). Contrary to the younger set, people don't live for ever and the body doesn't do as well boats as it (the body, that is) ages (but boating certainly slows the process).

Good-luck with your decision.

Captain Steve

[opsailor]

Liberty28 is correct. But if you borrow from a conventional source, you can deduct the interest. Draw funds (or additional funds) from the 401K in order to pay the low monthlies..... And whatever you do, get out on the water.