Cash out refi while I can?

[cat4ever]

Situation:
FIREing in a month, and will have no income thereafter.
Will be pulling from my taxable 401K savings for the next 3 years penalty free (I'm over 55).
Currently have a very low amount of after tax cash, so all living expenses, house upgrades (we need new windows), etc. will be from taxable 401K money.
I have no mortgage or other debt currently


Question:
Would it behoove me to do a cash out refinance now on my current house at a 3% rate plus fees while I still have an income in order to keep most/all the 401K money I withdraw in the 12% bracket for the next 3 years? Might also help with health care subsidies to keep income low, right? Doing this after my income ends will probably not be possible.
Are there risks in doing this?

 

[jazz4cash]

No, but I would set up. HELOC big enough to cover any known expenses like new windows plus a chunk in reserve for emergencies. I think you’ll find variable rates in the mid to low 2% range with no cost. Sometimes they require a minimum draw to get the line established but otherwise no cost until you use it.

 

[cat4ever]

Does a HELOC have income requirements? Or is that something I can put off until I need it, i.e. after FIREing? Also I always assumed interest rates weren't as good on HELOC's, is that a bad assumption?

 

[Montecfo]

Easier to get HELOC while you have income for sure.

I think you are thinking about some good things. What is tax situation beyond the next 2-3 years?

Use of debt to manage income can make some sense with low rate debt, but you have to run the numbers. How much subsidy is in play?

Good things to plan for sure.

 

[cat4ever]

Beyond next three probably not bad. I have a current 1.1 million Roth I can use to keep income low, however I would like to buy a second home at some point and would like to pay cash due to problems getting mortgage sans income. would probably do airBnB rentals with it to recoup some costs.

I wouldn't even want to guess at subsidies, things will be changing I'm sure and I'll likely be on COBRA for next year and a half.

Note I can't use the Roth now since I'm only 56.5.

 

[Out-to-Lunch]

Note I can't use the Roth now since I'm only 56.5.

You are allowed to withdraw the amount of your contributions at any time.

 

[cat4ever]

It's an old roth, opened in 98. Only about 70K in contributions. Combined with current after tax cash and 401K before tax funds, I figure a 200K HELOC or Cash out refi would put me in good stead for home projects and/or a vacation home buy should the perfect house pop up.

 

[jazz4cash]

HELOC rates are almost always variable. Right now you could prolly get a lower HELOC rate vs 30 yr fixed but of course the HELOC will adjust when rates rise. They are generally based on an index and a margin and should have caps for max rate and annual change. My HELOC is set to Prime Rate and the margin is -.76. It can change monthly but no more than 2%/yr.

 

[cat4ever]

Not a bad option. No closing fees and I guess I could cash out if rates got too bad by taking the tax hit to my 401k money

 

[jazz4cash]

I know it's a long shot.....does your 401k have a loan option after separation?

 

[RenoJay]

I applied for cash our refi early this year (and pulled out because they literally requested about 1,000 pages of documentation!) and just closed on a HELOC yesterday. Honestly I don’t think you can get it done in a month. The banks and credit unions are working at capacity right now.

 

[cat4ever]

Yeah, you may be right. Are there fewer docs/less time with a HELOC? Who did you get your's with?