Author Topic: Turn Home Equity into 401k funds?  (Read 2283 times)

wAs

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Turn Home Equity into 401k funds?
« on: February 19, 2012, 08:48:22 AM »
http://articles.marketwatch.com/2012-02-09/finance/31040771_1_mortgage-debt-gene-amromin-tax-deferred-accounts

After reading this article, I'm wondering if this would make sense in my situation?
I'm 53 years old. Home is worth around $110,000 with $16K remaining on mortgage. I'm wondering if it'd make sense to take some of the equity and put it into my 401k? In 2012 I believe the max 401k contribution is $17K, plus I can put in a "catch-up" contribution of $5500 due to my age.

I have a $25,000 HELOC on my home and I can take money out and pay it back at about 4% interest. (Currently, I owe $0 on the HELOC.)  I should mention that I'm not putting any new money into the 401k plan, so I'm leaving a dollar-for-dollar match from my employer of up to 6% of my pay on the table. I am paying back a 401k loan (bal $23,000) at the rate of $1000 per month. Due to this obligation, I haven't been in a position to put new funds into the 401k account.

Thanks for reading!

Physics

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Re: Turn Home Equity into 401k funds?
« Reply #1 on: February 19, 2012, 09:04:45 AM »
You need to get your employer match.

That should almost always be #1 priority.  It is a 100% return on investment and is essentially risk free.  You will never get a deal like that anywhere else,

Make whatever arrangements you have to to get that match, then consider your other options from there, because leaving that money on the table is a big financial mistake.

This is one of the few cases where I'd recommend remortgaging to get your financial picture more organized.

Get a $50k mortgage (16k + 37k new funds/liability), pay back the 23k loan, leaving you with 14k, which you should use to make at least the minimum 6% contribution to get your full match.

Now that you are no longer leaving free money on the table, start aggressively paying back your mortgage as you can moving forward.

This is what I would do, I'm sure there are other opinions.

Physics

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Re: Turn Home Equity into 401k funds?
« Reply #2 on: February 19, 2012, 09:06:12 AM »
Oh, and by "use the 14k" I mean use that 14k for your regular expenses that you were up until now paying out of your paycheck, and redirect the appropriate portion of your paycheck to get the 401k match.