Wednesday, August 13, 2014

My Tiny 401K

Financing a tiny house on wheels is a challenge.  (Yeah.  I know… understatement if there ever was one.)  Since they do not qualify for “traditional” mortgages, enthusiasts are forced to creatively finance their downsizing dreams.  Some of them save money the old fashioned way, a bit here and a bit there until the pile is large enough to do something with.  Some of us get creative and sell things on cragslist or ebay and barter for materials and labor that we’ll need.  (which is actually a great way to do it since you’re accomplishing your downsizing goals AND making money for your build!)

I, however, recently discovered that my tiny house qualifies for a hardship loan from my 401K.  Yes, I actually took money out of my TINY (and I mean TINY) 401K to pay for my tiny house trailer.
Taking a final inventory!

Before I tell you more about how to do this let me say that I do not necessarily recommend this and I am NOT a financial planner and nor can I give you sound advice for what to do with your retirement funds.  With that being said, however, I know that drastically reducing my cost of living by living in a tiny house will BETTER prepare me for retirement than my 401K savings will, at this point in my career and life.  I guess you could call it taking a short term “hit” in pursuit of a longer term goal.  And also, I was only employed at the company for just over a year so I didn’t sacrifice any vested balance or profit sharing.

A fun side project, making my tiny house FURNITURE!

So, how did I do it?

1)      Research – I started by doing lots of research. Your employer also likely has a website devoted to the management of their 401K plan.  And while every plan is different, all of them are governed by the IRS and subject to audit.  Look under “Withdrawals” for one under the heading of “Hardship” and read the details associated with YOUR employers criteria.

2)      Understand the Criteria – In a nutshell, a hardship withdrawal can only be requested after all other financing sources have been exhausted and in pursuit of (or to preserve) a primary residence ONLY.  There may be other restrictions but, again, the plan is managed by the IRS so they’ll be spelled out pretty clearly.

3)      Be Creative – While CREATIVITY and IRS are not typically two words that go together, neither do TINY and HOUSE under traditional conventions.  Understand that although the person who will be reviewing your application has not likely seen or heard of a tiny house, it does not diminish your tiny houses’ function as your primary residence.  Don’t, then, diminish your own intentions.  Be prepared to clarify for them, with conviction, “Yes, this withdrawal is for a down payment on my primary residence.” 

4)      Document – An application will require documents in support of your plan.  My application included the floor plan for my tiny house, my budget, and a signed contract (proforma invoice) from the trailer manufacturer stating that it cost MORE than my tiny 401K balance.  I also wrote a letter explaining my situation. (Empty Nester)

Within just a few days of submitting my application, my employer’s CFO approved the application and I received a check in the mail.  I then called my trailer guy, who delivered it and I handed the money to him.  (plus a little more)

My trailer is my home's foundation and the first step in building my tiny house.   While there may be naysayers who question exactly when and for how long I will reside in my home that is only slightly larger than their closets, I have not swayed from my original intent.
My Empty Nest will look a LOT like this beauty in Nashville.

Yes, this is a home, my home, my tiny home, my only home, and my dream come true…..  





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