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Occasional Contributor

What are the downsides of borrowing on my 401K versus a home equity loan for a landscaping project?

2 REPLIES

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Fred;

 

1. The biggest "downside" is the tax implications resulting from a "early withdrawal" from your 401K.

 

2. It is FAR BETTER to use a home equity loan since the mortgage interest that accrues on a home equity loan is TAX DEDUCTABLE which will lower your tax burden which is better than having to PAY TAXES if you do a "early withdrawal" from your 401K.

 

3. RECOMMENDATION: If you don't already have one, you should consider a home equity line of credit credit card.

 

I had one for years, using it like a normal credit card, and got the use of the yearly tax deduction from the mortgage interest that accrued.

 

Hope this helps you.

 

 

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Does the loan result in a distribution since it is repaid or does this depend on how the 401K was written?

 

Fred