Money Talks, So Should You

Q&A: Can I borrow from my 457(b) retirement plan to buy a house?

Michael Goldman
by Michael Goldman, The Garrett Network (@wealthgathering)

The short answer is no, but let me give you some details. In many ways, rules for 457(b) plans give you more advantages than 401(k) or 403(b) retirement plans. Borrowing is a different story, because 457(b) plan regulations are very strict in this area. Borrowing from a 457(b) plan is only permissible if it’s due to an unforeseeable emergency.

In most cases, this limitation makes borrowing for a house out of the question—along with those visions of granite countertops!

The IRS uses a stringent definition for “unforeseeable emergency.” Such an event might be a natural disaster, death or illness of an immediate family member, or imminent eviction from your primary residence.

READ: Ask Jane: Is your insurance coverage ready for more storms?

The regulations directly state that buying a home is not an unforeseeable emergency. Unfortunately, you’d have a hard time convincing the IRS that purchasing the McMansion of your dreams is a valid reason to borrow.

There is a rare but dismal loophole, however. If your primary residence was unexpectedly destroyed by a disaster like hurricane Sandy, borrowing from your 457(b) plan may be considered valid. Since the hurricane was a natural disaster, the IRS might make a decision in your favor.

 

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Michael Goldman, M.A., CFP®, is an expert in financial coaching and behavioral economics. He helps individual clients identify and reach meaningful life goals by making smart financial decisions. He is also founder of WealthGathering.com, the online social community that works as a personal trainer for financial fitness.