3 Considerations for Tapping Into Your 401k
1. Loan vs. Cash-Out Refinance vs. Home Equity Line of Credit (HELOC)
When it comes to taking out money from your 401k, there are a few different options available to you. You can either take out a loan, do a cash-out refinance, or get a home equity line of credit (HELOC). Each option has its own set of pros and cons, so it’s important to weigh your options carefully before making a decision.
2. The Pros and Cons of Getting a 401k Loan
Taking out a loan from your 401k can be a good option if you need money for a short-term expense. One of the biggest benefits of getting a 401k loan is that you don’t have to pay any taxes on the money you borrow. Additionally, you won’t have to go through a credit check in order to qualify for the loan.
However, there are also some downsides to taking out a 401k loan. One of the biggest drawbacks is that you will have to pay interest on the loan. Additionally, if you leave your job, you will likely have to repay the entire loan within 60 days or else it will be considered a withdrawal and subject to taxes and penalties.
3. The Pros and Cons of Doing a Cash-Out Refinance
A cash-out refinance can be a good option if you need a large amount of money and you want to avoid paying taxes on the withdrawal. With this type of refinance, you can borrow against the equity in your home in order to get cash upfront. The biggest benefit of doing a cash-out refinance is that you can typically get a lower interest rate than you would with a 401k loan or HELOC.
However, there are also some downside to doing a cash-out refinance. One of the biggest drawbacks is that it can take several weeks or even months to get approved for the loan. Additionally, if you have bad credit, you may not be able to qualify for this type of loan at all. Additionally, if you do not make your payments on time, you could put your home at risk of foreclosure.