Deciding Between Equity Sharing Agreements vs. 401K Loans vs. Reverse Mortgages
What's the Best Way to Invest in Your 401k - Loan, Equity Sharing, or Reverse Mortgage?
When it comes to retirement planning, there are a lot of options and terms that can be confusing. Two popular choices for funding your retirement are 401k loans and equity sharing agreements, but which is best?
401k Loans
A 401k loan is when you borrow money from your own 401k account. The advantage of a 401k loan is that the interest you pay goes back into your own account. 401k loans are also usually available at a lower interest rate than other types of loans.
The downside of a 401k loan is that if you leave your job, you will usually have to repay the loan within 60 days. If you can't repay the loan, it will be considered a withdrawal from your 401k and you will have to pay taxes on the amount you withdrew. You will also have to pay a 10% early withdrawal penalty if you are under the age of 59 1/2.
Equity Sharing Agreements
An equity sharing agreement is when you sell a portion of your home to another person in exchange for regular payments. The payments you receive can be used to help fund your retirement.
The advantage of an equity sharing agreement is that you don't have to make monthly payments. The payments you receive are based on the value of your home, so if your home increases in value, your payments will also increase.
The downside of an equity sharing agreement is that you will no longer own 100% of your home. You will also have to pay taxes on the income you receive from the equity sharing agreement.
Reverse Mortgages
A reverse mortgage is a loan that is secured by your home. The loan is not paid back until you die or sell your home. Reverse mortgages can be a good way to supplement your income in retirement.
The advantage of a reverse mortgage is that you don't have to make monthly payments. The loan is not paid back until you die or sell your home, so you can use the money from the loan for anything you want.
The downside of a reverse mortgage is that the loan amount will increase over time as interest accrues. This can reduce the amount of equity you have in your home. You may also owe estate taxes on the loan amount when you die.
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