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HelenZ
So worth the wait :)
Member since 10/07 2862 total posts
Name:
Helen
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loans from 401K?....need advice on our dormer situation
Anyone ever take a loan out on their 401K or an outright withdrawal? what are the pro's/con's, terms etc? I think it's a 10% penalty on withdrawal, which is of course a huge negative. just wanted to get anyone else's feedback or advice.
here's the background on our situation:
When I was laid off over a year ago we refinanced and saved an extra $500 per month by doing so.....at the time I did NOT want to take extra on our loan b/c I was out of work and wanted to keep our monthly bills down. This year financially we're doing much better, but I don't want to do an equity loan since we just did a refi last year (but I guess we shouldn't rule it out).
Soooo the reason we need a loan now, DH completely demolished the 2 bedrooms & 1/2 bath upstairs over the past few months.....our house is dormered, so we're hoping to have 3 bedrooms & a full bath up there if we extend the dormer and box out either the backside or front of our house (or both) We definitely need the extra space (we have 1 bdrm and a full bath on the 1st flr, but we want to have all bdrms on the 2nd flr and extend our living room into the current bdrm on 1st flr)...so, now it just comes down to what we should do as far as a loan.
DH has accumulated around $100K in his 401K (and is still a very young 35, so has plenty of time to build his 401K back up if we decide to withdraw), so do we take a loan out for maybe $50K to do upstairs or just withdraw outright? He would do all the interior work himself, we just have to pay someone for the new roof & the framing, and the architects fee, we have someone already who'll do the drawings/filings for $5K. I think DH's union told him we'd be paying back around $120 per week for a $50K loan ($480 per month, which seems like a lot for $50K, but then again I think that's only a 5 year payback term and the interest goes back to his acct).
Sorry this is so crazy long, but I feel like we've procrastinated on this forever....and while the weather is nice we have to get a move on and get this done, so when it's time for kids (hopefully by next year), we're ready...I do NOT want to be pregnant or have a newborn and deal w/ contruction in the house if possible!
here's a pic of our house, you can see how it's dormered in the front w/ the A frame, the sides are popped out and the back of the house just goes straight down.
any advice is greatly appreciated!!! thanks!!
**another question....would it reflect badly on our credit if we do a home equity loan now since we just refinanced in March 2009?
what would you do? home equity, equity line of credit, 401K loan, or 401K withdrawal?
Message edited 4/11/2010 8:50:29 PM.
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Posted 4/11/10 8:20 PM  |
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rose825
Best Friends
Member since 6/05 10228 total posts
Name:
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Re: anyone ever take a loan or withdrawal from 401K? need advice
getting a home equity loan is pretty easy with little closing costs
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| Posted 4/11/10 8:28 PM |
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Jodee
I love my girls
Member since 11/08 1510 total posts
Name:
Danielle
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Re: loans from 401K?....need advice on our dormer situation
401k... hardship w/d ....
ugh...
10% penalty and state tax anythinf\g over 10K
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| Posted 4/11/10 8:32 PM |
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HelenZ
So worth the wait :)
Member since 10/07 2862 total posts
Name:
Helen
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Re: loans from 401K?....need advice on our dormer situation
Posted by rose825
getting a home equity loan is pretty easy with little closing costs
thanks! Yes we had one previously paying about $500 per month (6.25%) for $75K but it's now part of our 1st mortgage when we refinanced last year. My concern with doing another equity loan is that if we do a 10 or 20 year loan we'd be paying off a lot more interest than if we just did the 401K loan (since that's only 5 yr terms). but then again it's a higher monthly expense with only a 5 year term especially considering that I will presumably not be working for some periods of time in the next few years when we do have kids.
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| Posted 4/11/10 8:36 PM |
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HelenZ
So worth the wait :)
Member since 10/07 2862 total posts
Name:
Helen
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Re: loans from 401K?....need advice on our dormer situation
Posted by Jodee
401k... hardship w/d ....
ugh...
10% penalty and state tax anythinf\g over 10K
hmmm perhaps DH can claim hardship, since he was laid off last month (he's in Local 3 so he's only "on the bench" not a permanent lay off).
so it sounds like we'd be paying $5K penalty and taxes on $40K to NY State if we took out $50K?.....that stinks!! withdrawal is the easier way out, but who would want to give up the 10%!! although it would be nice to keep the bills down and avoid the loan.....ughhhh! I wish the economy would pick up already so we wouldn't have to agonize over these decisions!!
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| Posted 4/11/10 8:39 PM |
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KLSbear
LIF Adult
Member since 1/06 1908 total posts
Name:
Karen
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Re: loans from 401K?....need advice on our dormer situation
It's never a good idea to pull from a 401K for anything less than abosolute last-resort. To pull it out for home improvements is not a good idea. If you take a loan and DH loses his job I think you have to pay it all back at once or risk a penalty too.
You'd be much better off doing a home equity loan, or better yet, a home equity line of credit. Since you'll be doing much of the work yourself you could look into Home Depot and Lowes CC - I think they both offer programs where you pay no interest as long as you pay it off in 12 months. You'd be better off leaving the money in the 401K where it can grow and put that money that would have gone back to the 401K towards the loan or no-interest CC payments.
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| Posted 4/11/10 8:41 PM |
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HelenZ
So worth the wait :)
Member since 10/07 2862 total posts
Name:
Helen
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Re: loans from 401K?....need advice on our dormer situation
Posted by KLSbear
It's never a good idea to pull from a 401K for anything less than abosolute last-resort. To pull it out for home improvements is not a good idea. If you take a loan and DH loses his job I think you have to pay it all back at once or risk a penalty too.
You'd be much better off doing a home equity loan, or better yet, a home equity line of credit. Since you'll be doing much of the work yourself you could look into Home Depot and Lowes CC - I think they both offer programs where you pay no interest as long as you pay it off in 12 months. You'd be better off leaving the money in the 401K where it can grow and put that money that would have gone back to the 401K towards the loan or no-interest CC payments.
thanks!! yes equity line of credit is an option too, but as far as store CC's, the $50K is mostly to pay the roofer and the framing company (that alone will probably cost $25K), so we could probably even get away with a $40K loan instead of $50K and then maybe do a 12 mth interest free for some of the material.
thank you so much for the suggestion, I really appreciate the feedback, it's interesting to hear what others would do and whether you'd touch the 401K or not....thanks!
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| Posted 4/11/10 8:45 PM |
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LSP2005
Bunny kisses are so cute!
Member since 5/05 19461 total posts
Name:
L
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Re: loans from 401K?....need advice on our dormer situation
I would never touch the 401k for what you want to use it for. Eating yes, to pay the mortgage because both had lost jobs, an emergency fine, but because I wanted a bigger house. No never. I am sorry that I don't have any suggestions, but you asked for opinions and this is mine.
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| Posted 4/11/10 8:57 PM |
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KLSbear
LIF Adult
Member since 1/06 1908 total posts
Name:
Karen
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Re: loans from 401K?....need advice on our dormer situation
Posted by HelenZ
Posted by KLSbear
It's never a good idea to pull from a 401K for anything less than abosolute last-resort. To pull it out for home improvements is not a good idea. If you take a loan and DH loses his job I think you have to pay it all back at once or risk a penalty too.
You'd be much better off doing a home equity loan, or better yet, a home equity line of credit. Since you'll be doing much of the work yourself you could look into Home Depot and Lowes CC - I think they both offer programs where you pay no interest as long as you pay it off in 12 months. You'd be better off leaving the money in the 401K where it can grow and put that money that would have gone back to the 401K towards the loan or no-interest CC payments.
thanks!! yes equity line of credit is an option too, but as far as store CC's, the $50K is mostly to pay the roofer and the framing company (that alone will probably cost $25K), so we could probably even get away with a $40K loan instead of $50K and then maybe do a 12 mth interest free for some of the material.
thank you so much for the suggestion, I really appreciate the feedback, it's interesting to hear what others would do and whether you'd touch the 401K or not....thanks!
I'm not sure what the current rates are but we have a HELOC that's only 3% right now and any balance can be converted to a conventional loan at any time too, to lock in a rate (the lock on a loan is a bit higher)
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| Posted 4/11/10 9:00 PM |
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HelenZ
So worth the wait :)
Member since 10/07 2862 total posts
Name:
Helen
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Re: loans from 401K?....need advice on our dormer situation
Posted by KLSbear
Posted by HelenZ
Posted by KLSbear
It's never a good idea to pull from a 401K for anything less than abosolute last-resort. To pull it out for home improvements is not a good idea. If you take a loan and DH loses his job I think you have to pay it all back at once or risk a penalty too.
You'd be much better off doing a home equity loan, or better yet, a home equity line of credit. Since you'll be doing much of the work yourself you could look into Home Depot and Lowes CC - I think they both offer programs where you pay no interest as long as you pay it off in 12 months. You'd be better off leaving the money in the 401K where it can grow and put that money that would have gone back to the 401K towards the loan or no-interest CC payments.
thanks!! yes equity line of credit is an option too, but as far as store CC's, the $50K is mostly to pay the roofer and the framing company (that alone will probably cost $25K), so we could probably even get away with a $40K loan instead of $50K and then maybe do a 12 mth interest free for some of the material.
thank you so much for the suggestion, I really appreciate the feedback, it's interesting to hear what others would do and whether you'd touch the 401K or not....thanks!
I'm not sure what the current rates are but we have a HELOC that's only 3% right now and any balance can be converted to a conventional loan at any time too, to lock in a rate (the lock on a loan is a bit higher)
wow 3% is great!!! when we refinanced we got 4.25%, so I'm really kicking myself that we didn't take more out to include renovations!
btw, how long ago did you take out the HELOC? what's the length of your loan and is it variable? thanks!
Message edited 4/11/2010 9:14:01 PM.
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| Posted 4/11/10 9:10 PM |
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HelenZ
So worth the wait :)
Member since 10/07 2862 total posts
Name:
Helen
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Re: loans from 401K?....need advice on our dormer situation
Posted by LSP2005
I would never touch the 401k for what you want to use it for. Eating yes, to pay the mortgage because both had lost jobs, an emergency fine, but because I wanted a bigger house. No never. I am sorry that I don't have any suggestions, but you asked for opinions and this is mine.
thanks for your input!  I wasn't so sure either that I'd want to touch his 401K, but for some reason he's ALL for it.....he thinks it's better actually since the interest goes back to his 401K acct from what I understand. that's why I'm trying to gather some opinions here, since right now DH & I are not in agreement on this one 
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| Posted 4/11/10 9:13 PM |
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KLSbear
LIF Adult
Member since 1/06 1908 total posts
Name:
Karen
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Re: loans from 401K?....need advice on our dormer situation
Posted by HelenZ
wow 3% is great!!! when we refinanced we got 4.25%, so I'm really kicking myself that we didn't take more out to include renovations!
btw, how long ago did you take out the HELOC? what's the length of your loan and is it variable? thanks!
I think we took it out about 2.5 years ago. It was with WAMU, now Chase. It is a variable - no interest option for 3 years but you can pay principal if desired. I think it started at 3.25%, then dropped to 3% where it's been for awhile.
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| Posted 4/11/10 9:25 PM |
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SpiceGirl
Dream big
Member since 1/06 2486 total posts
Name:
j
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Re: loans from 401K?....need advice on our dormer situation
I've always read that taking a loan from your 401K should be your last option. If you can get the money from some other source...that would be the way to go.
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| Posted 4/11/10 10:00 PM |
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Mrs213
????????
Member since 2/09 18986 total posts
Name:
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Re: loans from 401K?....need advice on our dormer situation
Don't do it - that's half your retirement money - I say you wait to do the improvements a year or so...
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| Posted 4/11/10 11:26 PM |
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Faithx2
All good things in 2016!!
Member since 8/05 20181 total posts
Name:
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Re: loans from 401K?....need advice on our dormer situation
We just recently pulled from DH's 401K. We had papers drawn up as if we were purchasing another home. He is union worker as well and has a million other funds in place besides his 401k. We were not worried at all in touching it 
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| Posted 4/12/10 6:58 AM |
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Re: loans from 401K?....need advice on our dormer situation
Everyone is right. Withdrawing from a 401k should only be the last resort... you really lose A TON of money by doing it.
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| Posted 4/12/10 8:08 AM |
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HelenZ
So worth the wait :)
Member since 10/07 2862 total posts
Name:
Helen
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Re: loans from 401K?....need advice on our dormer situation
Posted by OneOfEach
We just recently pulled from DH's 401K. We had papers drawn up as if we were purchasing another home. He is union worker as well and has a million other funds in place besides his 401k. We were not worried at all in touching it
ok, thanks for your input! did you do a loan or outright withdrawal? DH actually has about $120K in his account and our loan (or withdrawal whichever we choose) would be more like $40K, so a third of what he has in there now. do you mind me asking what union your DH is in? Mine is in Local 3, so he has annuity funds set up as well (and I don't even know what other accounts lol).
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| Posted 4/12/10 8:11 AM |
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rkoenke
my little piggys
Member since 3/08 4315 total posts
Name:
rachel
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Re: loans from 401K?....need advice on our dormer situation
don't do hardship, do a loan, there are no penalties.
i am a huge fan of loans from 401K, however, i am not a financial advisor.
when else can you pay YOURSELF interest rather than a bank. it's a no-brainer in my eyes.
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| Posted 4/12/10 8:32 AM |
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Annie91606
Brotherly love
Member since 12/07 1816 total posts
Name:
Anne
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Re: loans from 401K?....need advice on our dormer situation
I was a plan administrator for my old company's 401(k) for 7 years.
I always advised my employees to go the loan route before a withdrawal. Once the money is out of your account- it is GONE- and you lose some of the money to taxes right off the bat.
The big downside of a loan, however, is one that a lot of people do not realize. Despite the fact, that you are replenishing your account when you pay the loan back (with interest), you are losing the earnings you would get on that money while you are paying it back into your account.
So, instead of getting earnings on $110,000, you would only get them on $60,000 (or whatever your account balance will be after you borrow from it). I had a consultant do a chart for our employees to illustrate the impact this has on your account balance when you retire- it was significant.
One way to reduce this is to pay the loan off early, most companies will let you do that. If you can double up your payments or make a huge payoff before the 5 year period is up- it will help alleviate your loss on the earnings.
Hope that helps! GL!!
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| Posted 4/12/10 9:08 AM |
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pp1107
LIF Adolescent
Member since 1/08 831 total posts
Name:
P
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Re: loans from 401K?....need advice on our dormer situation
I refinanced with wells fargo last year as well and then a few months later borrowed a line of credit. The closing costs were very little and was all completed rather quickly. I also dormered my house and just want to add you may go over your budget. Something always happens that does not go the way it should and unfortunately comes with a price tag!
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| Posted 4/12/10 9:41 AM |
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Blu-ize
Plan B is Now Plan A
Member since 7/05 32475 total posts
Name:
Susan
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Re: loans from 401K?....need advice on our dormer situation
Posted by LSP2005
I would never touch the 401k for what you want to use it for. Eating yes, to pay the mortgage because both had lost jobs, an emergency fine, but because I wanted a bigger house. No never. I am sorry that I don't have any suggestions, but you asked for opinions and this is mine.
ITA. Bad idea, IMO.
DH has been out of work for 5 mos and it's getting tight but I'm still not touching it and we have a lot more than $100k in there.
It's not just the 10% penatly. You will pay taxes and you will be losing all of the growth in the market right now. I'm sure your account is not where it was 2 years ago.
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| Posted 4/12/10 10:46 AM |
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lakadema
LIF Adult
Member since 5/08 1180 total posts
Name:
Danielle
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Re: loans from 401K?....need advice on our dormer situation
I wouldn't touch the 401k unless I needed it for medical bills, food, some kind of catastrophic emergency.
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| Posted 4/12/10 11:04 AM |
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Blu-ize
Plan B is Now Plan A
Member since 7/05 32475 total posts
Name:
Susan
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Re: loans from 401K?....need advice on our dormer situation
and think about how much you will need at retirement, do the math and see how taking that money out hurts you.
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| Posted 4/12/10 11:19 AM |
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Katareen
5,000 Posts!
Member since 4/10 7180 total posts
Name:
Katherine
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Re: loans from 401K?....need advice on our dormer situation
Also, if you ever had to declare bankruptcy, your money in a 401K is UNTOUCHABLE.
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| Posted 4/12/10 11:55 AM |
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Cpt2007
A new love!
Member since 1/08 5946 total posts
Name:
Liz
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Re: loans from 401K?....need advice on our dormer situation
do not touch the 401k. take a heloc instead.
100k might sound like a lot right now with at least 30 years more of work ahead of you, but right now, to retire comfortably, the avg couple needs to have *at least* $1M in retirement accts. Most people in the NYC-metro area will need more than that.
Really, do not, for anything unless dire extreme circumstances (like you are going to lose your home or need to eat), touch the 401k.
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| Posted 4/12/10 11:58 AM |
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