skipro3
Recycles dryer sheets
5 years ago my home burned down. I rebuilt using insurance coverage along with an additional $50,000 I took as a loan on my 401K. The loan is being repaid back to my account over 15 years and at 9% interest. The interest and principal are paid back to me at AFT (After Tax Dollars) The loan itself was not claimed as income the year I withdrew it.
So, here I am, a year out from retiring and I will still owe about $45,000 on this 'loan'. Once I retire, I no longer have to pay myself back, the loan payments only being required to avoid an early withdraw penalty. However, the remaining balance on the draw will be considered income for that first year I'm retired with all the taxes that implies.
I'm considering using a HELOC I have available to me; $200,000 @ 4% with a payment of 1.25% of the amount borrowed as monthly payment.
My thought is this; I will be taxed on the $45,000 remaining I had borrowed the first year I'm retired and added to my retirement income, could result in several thousand in taxes. However, I could pay back my 401K with the HELOC prior to retirement and make a payment of 1.25% of the loan balance I borrow from my HELOC; about $562 a month. My current payment on the 401K loan to myself is $515 a month.
So, would it be better to just pay the tax hit up front as the loan turns into a draw that first retirement year, or to borrow from the HELOC and pay simple interest, which is tax deductible for the life of the HELOC loan?
I almost forgot to add; Not only is the interest on the HELOC tax deductible, the $45,000 from it is going back into my 401K account and earning it's growth as well, increasing that account by $45,000.
So, here I am, a year out from retiring and I will still owe about $45,000 on this 'loan'. Once I retire, I no longer have to pay myself back, the loan payments only being required to avoid an early withdraw penalty. However, the remaining balance on the draw will be considered income for that first year I'm retired with all the taxes that implies.
I'm considering using a HELOC I have available to me; $200,000 @ 4% with a payment of 1.25% of the amount borrowed as monthly payment.
My thought is this; I will be taxed on the $45,000 remaining I had borrowed the first year I'm retired and added to my retirement income, could result in several thousand in taxes. However, I could pay back my 401K with the HELOC prior to retirement and make a payment of 1.25% of the loan balance I borrow from my HELOC; about $562 a month. My current payment on the 401K loan to myself is $515 a month.
So, would it be better to just pay the tax hit up front as the loan turns into a draw that first retirement year, or to borrow from the HELOC and pay simple interest, which is tax deductible for the life of the HELOC loan?
I almost forgot to add; Not only is the interest on the HELOC tax deductible, the $45,000 from it is going back into my 401K account and earning it's growth as well, increasing that account by $45,000.
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