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I have an old employer 401(k) that I need to roll over into something, an since I'm likely about to fully exit the military I will also have my TSP to do something with. Between the two I have about $100k. I'm wondering if it is possible to roll the 401(k) and the TSP into the same account (regular IRA?), then take a loan against that account to pay off my house (about $100k balance). Second, would that even be wise? My thought is that I might be able to roll them into a regular IRA, then the interest goes back to me. 

 

Notes:

Already making max contrebutions to my Roth IRA, with no intention of stopping. 

Mortgage interest is pretty high at 5.125%. 

Already making large overpayments to the mortgage to pay it off within the next two years, so refinancing doesn't make much sense. Closing costs would be higher than the difference in interest. 

3 REPLIES

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WASD,

 

I would be very careful about doing this, how long do you have until retirement?  Why are you in a rush to pay off the note?  First if you have a high interest rate can you should refinance, the money could go to better use especially with the market in correction and amazing opportunities to go long. (the market will bounce back eventually)  Rates are insanely low right now PenFed and Navy Federal can get you close to 3%.  Second you can rollover your 401k and TSP into an IRA but make sure you roll over Roth funds to a Roth and traditional to a traditional or you will pay taxes.  If any of your TSP monies come from a combat zone those are tax exempt so it will take a little planning on your part.  if you do rollover the TSP / 401K I would recommend Vanguard their fees are incredibly low and place into a mixture of Index Funds.  If you take a loan out against an IRA you will have to pay it back eventually and you may have to pay fees.  Here is my recommendation, however I am not a financial consultant so you should certainly check any advice with a fiduciary.

 

1.  Rollover your 401K and TSP to the appropriate IRA

2. Invest the IRA into Index funds

3.  I would be very careful about taking out a loan, time is the most important portion of retirement investing

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Thank you very much for the reply. Fortunately I still have 20 years until retirement, so I'm not worried there. As for refinancing, I'm reluctant to do that because I plan to have the house paid off within the next 2 years either way. I expect that the refinance cost would be higher than the savings in interest over that period of time. 

 

Unfortunately, with the markets tanking right now, I think this plan is on hold. I'm still not sure exactly how an IRA Loan works but I feel like pulling any money out of my accounts at the moment would make my 30% loss in value "Real". I'll hold off until the market recovers a bit, then see if I can find a fudiciary. 

 

Thanks again

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I let a "financial advisor" talk me into rolling my TSP into an IRA.  Ended up being one of the worst financial decisions I've ever made -- I lost access to the low cost TSP funds, and the tax-exempt nature of contributions I made while receiving combat zone pay (tax free on the way in, *and* tax free on withdrawal) were lost.  If I had it to do over again, I would have kept my TSP and rolled my existing IRA and subsequent 401k into the TSP.

 

I would definitely think twice about closing out your TSP account.  It's one of the best deals out there.