529 vs 401k Loan?

[Sonnenberg]

First of all I want to thank the forum for all the information, long time lurker, learnt a lot from the forums.


Background

Age 38, Wife 34, Kid 1 6 yrs, Kid 2 on the way in september 2016.

My current assets:

Cash: 175k
Retirement account: 800k
Investment account: 820k
Kid 1: 529 Pre-paid account: 42k (Balance of 24k)
Kid 1: 529 investment account: 2k (hoping to have 50k in the account when the kid goes to college in 2027
Home equity: about 200k

Total: 1.8 M (not counting home equity and 529 plan)

Loans

Wife Student Loan: 7k remaining at 1.29%. Loan ends 2020
Car Loan: 15k at 0.99%
TSP Loan (His): 45k at 2.235%
401k Loan: 45k at 2.5%


Now the question

We took 401k and TSP Loan when we bought the house three years ago in anticipation of remodelling house (about 60k). We couldnt start the project due to some reason or the other and finally are now ready. Once we do the remodelling, we will have 115k left in cash and I am trying to figure out what should I do next. We will need about 60k in Emergency fund. That would leave us with 55k. Below are the two options I am thinking about

1. Pay off 24k from kid1's 529 pre-paid and close the account and use remaining 30k to fund Kid 2's prepaid. VA Prepaid account for 2017 would be 70k

2. Pay off 401k Loan and part of TSP Loan

[jazz4cash]

I generally kept tiny emergency fund esp when both of us were working. I figured 401k loan would be my backup in case of emergency. I'm not sure if there's a benefit to payoff the prepaid plan but I would divide the money between the loans and the 529.


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[Another Reader]

In my opinion, you have too much debt. If I had to borrow $60k from my TSP and my wife's 401(k) to remodel a house, I would conclude I could not afford the remodel. In your shoes, I would pay back those loans immediately. You haven't posted your income and expenses, but if I had to remodel to make the house livable, I would cash flow most of the remodel and use a small amount from savings.

If you need $60k in emergency money, you must have an expensive lifestyle or something going on that could require a large cash infusion. If this is a 6 months emergency fund, your expenses must be $10k a month. I might look at reducing your expenses, although without the context of your income and expenses, it's difficult to form an opinion.

ETA: You did not mention a mortgage. Is the house mortgaged? Are sizable mortgage payments part of your spending?

[Aerides]

with two kids, two car notes, and a mortgage, 10k a month in expense is kinda normal for most areas.

Repay the non-taxables now, and get a HELO to do that remodel if you must, but scale it back. You've lived with the house for a number of years so it wasn't a "must do to live here" remodel. Better you repay debts now, then reduce adding to savings over the next two years and spread out the remodel?

Probably not a good idea to remodel if you're living there with a newborn anyway (congrats in advance). Dust will build up, even if you're targeting just a room or two, you might uncover older issues, mold, etc., that are no biggie for minimal brief exposure for you, but probably want the new kid to be post-vaccine age before you mess with the house environment.

[RetireAge50]

I would pay off all the loans and do the remodel using your $175,000 in cash.

Probably doesn't matter much though as long as you keep piling up investments like you have been doing.

[jags86]

Quote:

Originally Posted by Aerides with two kids, two car notes, and a mortgage, 10k a month in expense is kinda normal for most areas. Repay the non-taxables now, and get a HELO to do that remodel if you must, but scale it back. You've lived with the house for a number of years so it wasn't a "must do to live here" remodel. Better you repay debts now, then reduce adding to savings over the next two years and spread out the remodel? Probably not a good idea to remodel if you're living there with a newborn anyway (congrats in advance). Dust will build up, even if you're targeting just a room or two, you might uncover older issues, mold, etc., that are no biggie for minimal brief exposure for you, but probably want the new kid to be post-vaccine age before you mess with the house environment.

Unless you live in a super posh neighborhood 10k/mo in expenses is certainly not normal. That implies you are making north of $160k/yr without any 401k contributions, more if so. That's 3x the median income of the country

[REWahoo]

FWIW, the OP has not been back on the forum since his initial post starting this thread back in July.