Unexpectedly retiring next month and plan to borrow from the 401k to pay off debts and remodel our home.?

We have stocks outside the 401k that we could sell but would rather wait until next year because of lower income after retirement putting us in a lower tax bracket.

We plan to borrow 10% to 20% of the 401k balance.

The money is in the money market in the 401k so it isn't as if we had it invested in funds. If they take part of the loan out of the funds, we could buy more back.

This would allow our 401k to grow for two more years before we start drawing money from it. It would also allow us to get our home ready to sell. We plan to borrow enough to make the payments, if it comes to that.

It seems to me that would be better than taking out money and paying taxes on it. Money paid back in will create a higher income stream for us when we start drawing from it.

Is this a good idea or what?

Any money borrowed from your 401K becomes due (usually within 60 days) when your employment ends. If you don't pay it back in the allowed time it becomes a withdraw and is reported to the IRS, which will want income tax on it. Check with your plan administrator.

Selling stocks held outside a tax differed account would be a much better idea as that money is taxed at a much lower rate.

Withdrawing from tax differed accounts (401K, IRA, etc.), in general, should be done after all other accounts are exhausted.

It sounds like you have thought this through, Even though you can get good answers on this site, With something this serious I would suggest seeking a financial ad visor, or talking to your banker, this is bigger than choosing what kind of car to by this vested money, and your family. Good luck!

One point to consider: generally when you borrow money from your 401k you must pay interest. You are paying interest in "after-tax" dollars. However, when you withdraw money eventually from your 401k you pay taxes on the total withdrawn, including the after-tax payments of interest. The interest that you pay back into your 401k is getting taxed twice.

goe to the Susie Orman website .you know the blonde lady, who gives advice on things like this!

sorry! i cant help you anymore then this!

you may want to consider leaving your retirement alone and tapping into your equity for remodeling. interest is tax deductible and there is the increase in value caused by remodel.