Contribute to 401k or pay off fixed 20yr 7.625% HELOC?
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Contribute to 401k or pay off fixed 20yr 7.625% HELOC?
Quick question
Currently have 600k in 401k (age 43)
Have a primary mortgage 350k @ 4.325
Have a secondary HELOC for 24k @ 7.625
Have 3-6 months in emergency fund (40k)
Make too much to contribute to Roth IRA
Cashflow is a little tight.
Last year I contributed max (18k) to 401k
Zero taxable investments - wish I had them
I’m sick and tired of the HELOC I have been paying for 11 years (originally 59k, made many extra payments). It’s $500 per month
So I have a solid 401k which I can’t touch, and historically the heloc mortgage interest was deductible. But the GOP just took that away for 2018. So I am wondering if it makes sense to not contribute this year to 401k and instead pay off this HELOC with high interest
Another option would be a refinance to lower rate but I think to get to 20 percent equity - you guessed it - I need to pay off the 24k heloc anyway ...
My employer matches 10 percent of what I put in, so if I contribute 18500 they would add 1,850. So between tax breaks on income and the match it seems a no brainer math wise to go 40-k. But the cash flow could be used to start a taxable portfolio that is liquid that I could actually touch in a pinch or if I wanted to spin up a business or buy a rental property etc.
Currently have 600k in 401k (age 43)
Have a primary mortgage 350k @ 4.325
Have a secondary HELOC for 24k @ 7.625
Have 3-6 months in emergency fund (40k)
Make too much to contribute to Roth IRA
Cashflow is a little tight.
Last year I contributed max (18k) to 401k
Zero taxable investments - wish I had them
I’m sick and tired of the HELOC I have been paying for 11 years (originally 59k, made many extra payments). It’s $500 per month
So I have a solid 401k which I can’t touch, and historically the heloc mortgage interest was deductible. But the GOP just took that away for 2018. So I am wondering if it makes sense to not contribute this year to 401k and instead pay off this HELOC with high interest
Another option would be a refinance to lower rate but I think to get to 20 percent equity - you guessed it - I need to pay off the 24k heloc anyway ...
My employer matches 10 percent of what I put in, so if I contribute 18500 they would add 1,850. So between tax breaks on income and the match it seems a no brainer math wise to go 40-k. But the cash flow could be used to start a taxable portfolio that is liquid that I could actually touch in a pinch or if I wanted to spin up a business or buy a rental property etc.
Last edited by SilverDollars on Sat Jan 06, 2018 10:05 am, edited 1 time in total.
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Re: Contribute to 401k or pay off 7.625% HELOC?
In your shoes, I would move column "emergency fund" to column "HELOC" and be done with it. Owing 24 grand @7.625% in this low rate environment is a reasonable definition of emergency.
I would keep the HELOC open in case you need it.
Please search this site for "backdoor Roth." No one makes too much to do a Roth IRA.
I would keep the HELOC open in case you need it.
Please search this site for "backdoor Roth." No one makes too much to do a Roth IRA.
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Re: Contribute to 401k or pay off 7.625% HELOC?
On the backdoor Roth, the last time I looked into it I wasn’t able to do it because I had a traditional IRA. I also have two smaller 401k funds.
Traditional IRA: 500k
Old firm 401k: 50k
Current firm 401k: 50k
Also I make 250k (although doesn’t feel like that much since it also cost 249k to live cheap here) but that means I’m in a high tax bracket which is why I have went with the 401k over the Roth and was leery of taking money out of 401k to Roth and hhhavinf to pay high tax rate?
On the emergency fund paying off the heloc - I totally hear you on the rate. Having said that it would wipe out all but a month or so of emergency fund, with only $500 per month in cash flow to replenish it.
Traditional IRA: 500k
Old firm 401k: 50k
Current firm 401k: 50k
Also I make 250k (although doesn’t feel like that much since it also cost 249k to live cheap here) but that means I’m in a high tax bracket which is why I have went with the 401k over the Roth and was leery of taking money out of 401k to Roth and hhhavinf to pay high tax rate?
On the emergency fund paying off the heloc - I totally hear you on the rate. Having said that it would wipe out all but a month or so of emergency fund, with only $500 per month in cash flow to replenish it.
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Re: Contribute to 401k or pay off 7.625% HELOC?
I take the emergency saving and payoff the HELOC. If there is an emergency you can use the HELOC again. But that’s one crazy high HELOC rate. Try PenFed, it’s a lot cheaper.
Re: Contribute to 401k or pay off 7.625% HELOC?
You are in a high tax bracket and 10% employee match. I would not stop doing that.
Is 401k loan an option?
If it were me I’d find a way to reduce expenses or increase income to pay it off. Also agree that there has to be a cheaper HELOC option out there.
With your cash flow issues the last thing you need to worry about is a rental property.
Is 401k loan an option?
If it were me I’d find a way to reduce expenses or increase income to pay it off. Also agree that there has to be a cheaper HELOC option out there.
With your cash flow issues the last thing you need to worry about is a rental property.
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Re: Contribute to 401k or pay off 7.625% HELOC?
The heloc was a fixed heloc (ie a pure 20 year second mortgage) on an 80/10 mortgage split. Haven’t been able to refinance it because you need 20 percent equity to get a better rate. Bought house in 2006 at 529 with 10 percent down. In next two years house value sank to 380. Even now it’s only worth 470 tops. That’s the problem. Never had the options to fix it without paying it off without having no savings left.
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Re: Contribute to 401k or pay off 7.625% HELOC?
I agree with the posters who suggest paying off the HELOC with the emergency cash, then building that back up ASAP this year. If there absolutely, positively is no way to do that quickly without making this year's 401K contribution less than the max, then trim that a bit. A non-deductible 7%+ debt should get higher priority than maxing out the 401K, but the first priority should be to build the reserve fund back up through some belt tightening for just this year.
Re: Contribute to 401k or pay off 7.625% HELOC?
If you want the HELOC gone and you have been paying it for 11 years, decide on a timeframe for payoff.SilverDollars wrote: ↑Fri Jan 05, 2018 7:37 pm
On the emergency fund paying off the heloc - I totally hear you on the rate. Having said that it would wipe out all but a month or so of emergency fund, with only $500 per month in cash flow to replenish it.
I would chip away at the HELOC using money from your 42k EF.
three ideas (appx) would be 4k for 6 months or 6k for 4 months or 2k for 12 months... then it wouldn't be a total shock and you can adjust along the way, if needed.
Mid-40’s
Re: Contribute to 401k or pay off 7.625% HELOC?
The interest on the HELOC is no longer tax deductible so it might as well be CC debt at 7%. I'd pay it off.
Re: Contribute to 401k or pay off 7.625% HELOC?
OP said he bought the house with a 80/10/10 mortgage. Therefore this HELOC is acquisition debt and is deductible even under new rules
That said, I also agree 7.625% is crazy high rate and is an emergency.
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Re: Contribute to 401k or pay off 7.625% HELOC?
I'm not understanding why you can't do both? With a 250k income they should both be possible. Of course, I don't know your expenses....
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Re: Contribute to 401k or pay off 7.625% HELOC?
That is a pretty bad match. Although it is free money, it is not a lot of free money.
Personally I would take a little risk and use that emergency fund to pay off the HELOC while maintaining your 401k contributions. You are gainfully employed, and you could always take out another HELOC in an emergency. Use the cash flow to re-fund your emergency fund and start brokerage account.
Long term, think hard about what caused you to open the HELOC and why your cash flow is tight. With 250K income you should be able to live comfortably anywhere. Something is causing you to live beyond your means.
You should roll your Traditional into your 401k and start doing backdoor Roth. With such high spending, you need to save more for retirement.
Personally I would take a little risk and use that emergency fund to pay off the HELOC while maintaining your 401k contributions. You are gainfully employed, and you could always take out another HELOC in an emergency. Use the cash flow to re-fund your emergency fund and start brokerage account.
Long term, think hard about what caused you to open the HELOC and why your cash flow is tight. With 250K income you should be able to live comfortably anywhere. Something is causing you to live beyond your means.
You should roll your Traditional into your 401k and start doing backdoor Roth. With such high spending, you need to save more for retirement.
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Re: Contribute to 401k or pay off 7.625% HELOC?
Expenses are a factor. Live in nyc area so milk is $20 a gallon (j/k), gas expensive, property tax is $1000 a month. My train commuting costs are $500 a month alone, plus vehicle cost and taxes. I also put aside $200 a month for health FSA, they’ve just increased our medical premiums at work. At the end of the day I take home about 11k per month after taxes, FSA, pre tax commuter and health, and our budget is 10k per month without any unexpected costs or vacations factored in. As single income provider for fam I also pay $300 a month for a good term life insurance and good LTD plan. Mortgage and HELOC and taxes and insurance are $3800 a month off the top of income, $4300 with an extra $500 going there.
So I have been chipping away at the loans with an extra $500 per month which is what I can spare.
We can improve with eating out. And a few other things. Which is why I just started using YNAB to get stricter on budget.
As luck would have it, this “bomb cyclone” store just knocked a tree on to my car and smashed off the passenger electronic mirror. It’s a $420 part. I have a $500 deductible.
So I have been chipping away at the loans with an extra $500 per month which is what I can spare.
We can improve with eating out. And a few other things. Which is why I just started using YNAB to get stricter on budget.
As luck would have it, this “bomb cyclone” store just knocked a tree on to my car and smashed off the passenger electronic mirror. It’s a $420 part. I have a $500 deductible.
Re: Contribute to 401k or pay off 7.625% HELOC?
Use emergency fund to pay off HELOC. Does your current 401(k) have good investment options and low expenses? If so, consider rolling your Traditional IRA (and Old firm 401(k) for simplicity even though that’s not actually a necessary step) into Current firm 401(k). Then you can hold $11k of your emergency fund (2017 and 2018 Backdoor Roth) inside of a Roth IRA for potential future investment. Then get to work rebuilding cash reserves outside of your Roth. Keep maxing 401(k).SilverDollars wrote: ↑Fri Jan 05, 2018 7:37 pm
Traditional IRA: 500k
Old firm 401k: 50k
Current firm 401k: 50k
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Re: Contribute to 401k or pay off 7.625% HELOC?
These are good questions, some I can answer better than others.aristotelian wrote: ↑Sat Jan 06, 2018 7:22 am That is a pretty bad match. Although it is free money, it is not a lot of free money.
Personally I would take a little risk and use that emergency fund to pay off the HELOC while maintaining your 401k contributions. You are gainfully employed, and you could always take out another HELOC in an emergency. Use the cash flow to re-fund your emergency fund and start brokerage account.
Long term, think hard about what caused you to open the HELOC and why your cash flow is tight. With 250K income you should be able to live comfortably anywhere. Something is causing you to live beyond your means.
You should roll your Traditional into your 401k and start doing backdoor Roth. With such high spending, you need to save more for retirement.
Is a 10 percent (of total) match considered bad? For instance that’s $1850 this year on $18500.
The heloc was part of the home purchase. To avoid PMI we did an 80 percent primary and a 10 percent secondary. In 2005 when we bought the house, housing market was in fire. Everyone was saying get a house now because in 10 more years you won’t be able to ever get one. At the time we had a small 2
Bedroom starter home and a third child coming so felt forced to move. Hindsight is 20/20 (painfully so) and being a Monday morning qb is always easy. But we didn’t know that 10 years later housing prices would STILL only be 85 percent of what we were paying then.
I can probably post out our budget. It won’t be appreciated by the super frugal I am sure. We pay for one kid to play soccer and basketball (clinics and teams), another kid who does art and music (we pay for that plus singing lessons once per week). We have math tutors for the two high school kids who do well in all subjects not math. I pay $25 for my gym membership, wife pays $170 per month for crossfit. Any debates on her switching to my gym usually ends with threats from her. Car insurances. $450 a month on gas. $200 a month on the 23k town sewer assessment loan the town dumped on us all without choice. Spending money. $1500 groceries (which is hardly anything in this area where a half carriage of stuff is $200).
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Re: Contribute to 401k or pay off 7.625% HELOC?
Regarding the match, it is very field dependent. Many people get zero match. I probably should not have said "good" or "bad" but it is not enough to make it a "no brainer" to maximize the match. Do you give you an idea, my employer contributes double my contribution up to 5% of my salary, so I contribute $5K and employer contributes $10K. I would have to be completely out of money in my other accounts to turn that match down.SilverDollars wrote: ↑Sat Jan 06, 2018 7:39 am These are good questions, some I can answer better than others.
Is a 10 percent (of total) match considered bad? For instance that’s $1850 this year on $18500.
The heloc was part of the home purchase. To avoid PMI we did an 80 percent primary and a 10 percent secondary. In 2005 when we bought the house, housing market was in fire. Everyone was saying get a house now because in 10 more years you won’t be able to ever get one. At the time we had a small 2
Bedroom starter home and a third child coming so felt forced to move. Hindsight is 20/20 (painfully so) and being a Monday morning qb is always easy. But we didn’t know that 10 years later housing prices would STILL only be 85 percent of what we were paying then.
I can probably post out our budget. It won’t be appreciated by the super frugal I am sure. We pay for one kid to play soccer and basketball (clinics and teams), another kid who does art and music (we pay for that plus singing lessons once per week). We have math tutors for the two high school kids who do well in all subjects not math. I pay $25 for my gym membership, wife pays $170 per month for crossfit. Any debates on her switching to my gym usually ends with threats from her. Car insurances. $450 a month on gas. $200 a month on the 23k town sewer assessment loan the town dumped on us all without choice. Spending money. $1500 groceries (which is hardly anything in this area where a half carriage of stuff is $200).
I don't want to scrutinize your budget. That's your business. But on paper it appears you have a low savings rate (although you have done a good job to accumulate over $1M). With $250K income it appears you are saving <10% of your income (no Roth, no brokerage, $20K in 401k). That would generally be regarded as a low saving rate. You have a modest mortgage. You should be able to spend less if you want to. If you want to work until 67 or cut back your lifestyle in retirement, that is fine too.
If you want to maintain $200K spending in retirement, you probably need to save upwards of $4M real (inflation adjusted, more like $7-8M).
Last edited by aristotelian on Sat Jan 06, 2018 8:11 am, edited 1 time in total.
Re: Contribute to 401k or pay off 7.625% HELOC?
Once the HELOC is paid he frees up $500 a month. Done deal for me, 24k from the EF to the HELOC, boom, done. Still have 18k EF, add 500 a month till back to where you want it.TheAncientOne wrote: ↑Fri Jan 05, 2018 8:13 pm I agree with the posters who suggest paying off the HELOC with the emergency cash, then building that back up ASAP this year. If there absolutely, positively is no way to do that quickly without making this year's 401K contribution less than the max, then trim that a bit. A non-deductible 7%+ debt should get higher priority than maxing out the 401K, but the first priority should be to build the reserve fund back up through some belt tightening for just this year.
"Confusion has its cost" - Crosby, Stills and Nash
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Re: Contribute to 401k or pay off 7.625% HELOC?
More good info thank you.aristotelian wrote: ↑Sat Jan 06, 2018 7:51 amRegarding the match, it is very field dependent. Many people get zero match. I probably should not have said "good" or "bad" but it is not enough to make it a "no brainer" to maximize the match. Do you give you an idea, my employer contributes double my contribution up to 5% of my salary, so I contribute $5K and employer contributes $10K. I would have to be completely out of money in my other accounts to turn that match down.SilverDollars wrote: ↑Sat Jan 06, 2018 7:39 am These are good questions, some I can answer better than others.
Is a 10 percent (of total) match considered bad? For instance that’s $1850 this year on $18500.
The heloc was part of the home purchase. To avoid PMI we did an 80 percent primary and a 10 percent secondary. In 2005 when we bought the house, housing market was in fire. Everyone was saying get a house now because in 10 more years you won’t be able to ever get one. At the time we had a small 2
Bedroom starter home and a third child coming so felt forced to move. Hindsight is 20/20 (painfully so) and being a Monday morning qb is always easy. But we didn’t know that 10 years later housing prices would STILL only be 85 percent of what we were paying then.
I can probably post out our budget. It won’t be appreciated by the super frugal I am sure. We pay for one kid to play soccer and basketball (clinics and teams), another kid who does art and music (we pay for that plus singing lessons once per week). We have math tutors for the two high school kids who do well in all subjects not math. I pay $25 for my gym membership, wife pays $170 per month for crossfit. Any debates on her switching to my gym usually ends with threats from her. Car insurances. $450 a month on gas. $200 a month on the 23k town sewer assessment loan the town dumped on us all without choice. Spending money. $1500 groceries (which is hardly anything in this area where a half carriage of stuff is $200).
I don't want to scrutinize your budget. That's your business. But on paper it appears you have a low savings rate (although you have done a good job to accumulate over $1M). With $250K income it appears you are saving <10% of your income (no Roth, no brokerage, $20K in 401k). That would generally be regarded as a low saving rate. You have a modest mortgage. You should be able to spend less if you want to. If you want to work until 67 or cut back your lifestyle in retirement, that is fine too.
If you want to maintain $200K spending in retirement, you probably need to save upwards of $4M.
Our plan is to move out of this area when we get older. Maybe even as soon as 6 years from now when our youngest is about to go to college. Houses here are $450k for a basic raised ranch. $12k in annual taxes, plus another $1500-2000 for auto taxes to the town. It all goes to the good schools. But it’s costly. Gas, milk, very expensive.
I think we can easily live on half (or less) of the budget we do now once empty nesters.
Part of the issue with the 10 percent saving rate is that the salary is only 180. So during the year we barely make ends meet, and then the February bonus is large. Of course usually from that I pay the entire year 401k contribution in once shot, which lowers the bonus, then 40-50 percent of bonus is withheld. So you see a big fat number like 70k, but then it’s chopped by 18k and then halved again. You end up taking home like 30.
A lot of our “savings” in the last few years has
Gone to the house. 12k for a needed roof. 14k to re-side the entire house. 6k to replace 1967 boiler. 3k to replace deck which was old and rotting. Money to fix a fireplace leak. And this year we got hit with a surprise, our septic system failed. This gave us the choice of new septic, or connect to sewers. Best cost I could get on sewer hookup was $4800 (140 linear feet from back of house). So it’s been 20k per year in home stuff last few years.
I’m driving a 2005 Honda Pilot with 200k miles. Car now needs new drive axles, timing belt, new tires and brakes. Considering giving up on it as it now would need 2-3k in Work. It isn’t worth much more than that.
We also do pay for my parents a bit as well. I pay for their home water delivery (they are broke, late 60s, zero dollars, iRS lein against their home, long story), my parents cell phones are on my plan so they don’t keep getting shut off. I help with their medical bills (Dad having neck surgery next week). We both came from families with no money and never got help. We paid for our wedding (credit cards when young), etc.
I’m reaching out to a mortgage refi person. I’m looking at Sikorsky credit unions mortgage options. Might be better to just refi entire two loans into a 3.x loan, may have to pay down some cash to get To 20 percent equity, and instead pay off the 10k town sewer assessment loan (5.5 pct) and put the rest away
We do have a small Roth IRA (8k now from the one year I didn’t make enough to qualify because my firm closed their doors and I was out of work for 4 months looking).
You can roll a traditional Ira into your 401k? I think they have good plan and fees. I thought an ira was one way. Hmm. My accountant is a good guy and super anal but he’s never been helpful on the investing / retirement side of things.
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Re: Contribute to 401k or pay off 7.625% HELOC?
Use EF to payoff HELOC! You will free up 500 in additional cash flow, and can send 1500 a month back to your EF each month. Are you expecting to owe additional taxes or get a refund? I would run your numbers to make sure as it can be another way to help or hurt soon.
What is your family's car situation?
I STRONGLY recommend you check out Dave Ramsey and his Total Money Makeover from the library and possibly a financial peace university class to get you and the wife in the same page with regards to personal finance. Sit down with her and have a frank conversation about your stress levels with your financial situation and discuss each other's long term goals. Get on a cash budget, and once the cash is gone for the month, quit spending.
I know you are not in heavy credit card debt or anything, but developing a long term plan in regards to budgeting with one's spouse can turn your situation around quickly and give you a strong reduction in stress while improving your relationships! Good luck
What is your family's car situation?
I STRONGLY recommend you check out Dave Ramsey and his Total Money Makeover from the library and possibly a financial peace university class to get you and the wife in the same page with regards to personal finance. Sit down with her and have a frank conversation about your stress levels with your financial situation and discuss each other's long term goals. Get on a cash budget, and once the cash is gone for the month, quit spending.
I know you are not in heavy credit card debt or anything, but developing a long term plan in regards to budgeting with one's spouse can turn your situation around quickly and give you a strong reduction in stress while improving your relationships! Good luck
I hold index funds because I do not overestimate my ability to pick stocks OR stock pickers.
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Re: Contribute to 401k or pay off 7.625% HELOC?
That would depend on your plan but it is a possibility. Most providers are happy to accept your money in exchange for a small percentage.SilverDollars wrote: ↑Sat Jan 06, 2018 8:17 am You can roll a traditional Ira into your 401k? I think they have good plan and fees. I thought an ira was one way. Hmm. My accountant is a good guy and super anal but he’s never been helpful on the investing / retirement side of things.
Re: Contribute to 401k or pay off 7.625% HELOC?
SilverDollars wrote: ↑Fri Jan 05, 2018 6:01 pm Quick question
Currently have 600k in 401k (age 43)
Have a primary mortgage 350k @ 4.325
Have a secondary HELOC for 24k @ 7.625
Have 3-6 months in emergency fund (40k)
Make too much to contribute to Roth IRA
Cashflow is a little tight.
Last year I contributed max (18k) to 401k
Zero taxable investments - wish I had them
I’m sick and tired of the HELOC I have been paying for 11 years (originally 59k, made many extra payments). It’s $500 per month
So I have a solid 401k which I can’t touch, and historically the heloc mortgage interest was deductible. But the GOP just took that away for 2018. So I am wondering if it makes sense to not contribute this year to 401k and instead pay off this HELOC with high interest
Another option would be a refinance to lower rate but I think to get to 20 percent equity - you guessed it - I need to pay off the 24k heloc anyway ...
My employer matches 10 percent of what I put in, so if I contribute 18500 they would add 1,850. So between tax breaks on income and the match it seems a no brainer math wise to go 40-k. But the cash flow could be used to start a taxable portfolio that is liquid that I could actually touch in a pinch or if I wanted to spin up a business or buy a rental property etc.
This is NOT a HELOC (which FYI stands for Home Equity Line of Credit). You have a very pricy second mortgage on a house that is still underwater from the housing bust. I would change the title - try something like "Contribute to 401k or pay off 7.625% 2nd lien - Underwater on House" and modify the wording in your first post. Otherwise a lot of people replying will continue to only read the first post and recommend that you just get a better HELOC rate - which would be good advise if you actually had one.SilverDollars wrote: ↑Fri Jan 05, 2018 8:05 pm The heloc was a fixed heloc (ie a pure 20 year second mortgage) on an 80/10 mortgage split. Haven’t been able to refinance it because you need 20 percent equity to get a better rate. Bought house in 2006 at 529 with 10 percent down. In next two years house value sank to 380. Even now it’s only worth 470 tops. That’s the problem. Never had the options to fix it without paying it off without having no savings left.
You have an odd IRA match, so I I'm not sure the conventional wisdom to at least get the company match makes sense. How much interest did you pay in 2017 on this loan? I'm not sure putting that much into your 401k is a "no brainer" in your circumstances.
Are you sure that you "can't touch" your 401k via a loan? Have you checked your plan documents or talked with HR? I am generally not a proponent of 401k loans, but in your case I think it would probably be a good idea if it is an option. They are limited in the amount you can take out, but it is usually the smaller of 50% of your balance or $50K. Term is limited to 5 years or 10 years for a housing purchase (not sure whether paying off an existing loan would count for the latter). You would pay back the loan directly to your 401k plan at a preset interest rate - I'm pretty sure it would be a lot less than 7.625%. Depending on the rules in your plan you might be limited in the amount of new money you could contribute to the 401k or you might lose the match during the loan period if they do allow new contributions. . I somehow missed the size of his EF. I agree with others that he should consider raiding his EF for to pay off the loan vs. taking an 401k loan.
My other comment is that there is always some fat in the budget - do you track your spending? What could you cut out - expensive cell phone plan, cable, eating out, etc? Can you generate some additional income by renting out a room in your house or picking up a second job?
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Re: Contribute to 401k or pay off 7.625% HELOC?
I called it a heloc because it actually is. That’s what the statement says from the bank. But it’s called a 20 year fixed HELOC. It’s interest accrues like a heloc I believe but it’s a fixed rate and term. So in that seconds it’s a second mortgage.cherijoh wrote: ↑Sat Jan 06, 2018 9:16 amSilverDollars wrote: ↑Fri Jan 05, 2018 6:01 pm Quick question
Currently have 600k in 401k (age 43)
Have a primary mortgage 350k @ 4.325
Have a secondary HELOC for 24k @ 7.625
Have 3-6 months in emergency fund (40k)
Make too much to contribute to Roth IRA
Cashflow is a little tight.
Last year I contributed max (18k) to 401k
Zero taxable investments - wish I had them
I’m sick and tired of the HELOC I have been paying for 11 years (originally 59k, made many extra payments). It’s $500 per month
So I have a solid 401k which I can’t touch, and historically the heloc mortgage interest was deductible. But the GOP just took that away for 2018. So I am wondering if it makes sense to not contribute this year to 401k and instead pay off this HELOC with high interest
Another option would be a refinance to lower rate but I think to get to 20 percent equity - you guessed it - I need to pay off the 24k heloc anyway ...
My employer matches 10 percent of what I put in, so if I contribute 18500 they would add 1,850. So between tax breaks on income and the match it seems a no brainer math wise to go 40-k. But the cash flow could be used to start a taxable portfolio that is liquid that I could actually touch in a pinch or if I wanted to spin up a business or buy a rental property etc.This is NOT a HELOC (which FYI stands for Home Equity Line of Credit). You have a very pricy second mortgage on a house that is still underwater from the housing bust. I would change the title - try something like "Contribute to 401k or pay off 7.625% 2nd lien - Underwater on House" and modify the wording in your first post. Otherwise a lot of people replying will continue to only read the first post and recommend that you just get a better HELOC rate - which would be good advise if you actually had one.SilverDollars wrote: ↑Fri Jan 05, 2018 8:05 pm The heloc was a fixed heloc (ie a pure 20 year second mortgage) on an 80/10 mortgage split. Haven’t been able to refinance it because you need 20 percent equity to get a better rate. Bought house in 2006 at 529 with 10 percent down. In next two years house value sank to 380. Even now it’s only worth 470 tops. That’s the problem. Never had the options to fix it without paying it off without having no savings left.
You have an odd IRA match, so I I'm not sure the conventional wisdom to at least get the company match makes sense. How much interest did you pay in 2017 on this loan? I'm not sure putting that much into your 401k is a "no brainer" in your circumstances.
Are you sure that you "can't touch" your 401k via a loan? Have you checked your plan documents or talked with HR? I am generally not a proponent of 401k loans, but in your case I think it would probably be a good idea if it is an option. They are limited in the amount you can take out, but it is usually the smaller of 50% of your balance or $50K. Term is limited to 5 years or 10 years for a housing purchase (not sure whether paying off an existing loan would count for the latter). You would pay back the loan directly to your 401k plan at a preset interest rate - I'm pretty sure it would be a lot less than 7.625%. Depending on the rules in your plan you might be limited in the amount of new money you could contribute to the 401k or you might lose the match during the loan period if they do allow new contributions. . I somehow missed the size of his EF. I agree with others that he should consider raiding his EF for to pay off the loan vs. taking an 401k loan.
My other comment is that there is always some fat in the budget - do you track your spending? What could you cut out - expensive cell phone plan, cable, eating out, etc? Can you generate some additional income by renting out a room in your house or picking up a second job?
Cell phones: $185 for 7 people. Including my mom and Dad. I get a 20 percent discount from my former job. Can’t trim any more there
Cable: just trimmed it by $50 a month getting rid of two boxes and going down to 1 tv and removing all movie channels.
Eating out: at times our bane. We’re starting on YNAB envelope system as of Jan 1 and severely limited eating out budget. More
Meals at home. My wife drives the success of this since she
Works 15 hours a week and I work 50 and commute an additional 20
Second job: I joke to people that I already have one, which is my 5 hour round trip commute to work. I do this 4 days a week. Wake at 5:30 and get home at 8 pm. Not a lot of time for a second it b. Having said that, I could move closer to home and make 30 Percent less, which is why I call the commute a second job. Wife usually works 8-12 or so and then spends afternoon tending home and bringing kids to soccer, lessons, friends.