{ "media_type": "text", "post_content": "Hi, so I have a family emergency for which I need $50k that I will need to float for the next year. I’m wondering if I should (1) pull out from my brokerage account, (2) get a low interest loan (if possible) or (3) borrow against my 401k. Thoughts?", "post_id": "5f47e0fe4c48b90030268770", "reply_count": 12, "vote_count": 1, "bowl_id": "59064a3cb12379001006592c", "bowl_name": "Personal Investment Chatter" }

Hi, so I have a family emergency for which I need $50k that I will need to float for the next year. I’m wondering if I should (1) pull out from my brokerage account, (2) get a low interest loan (if possible) or (3) borrow against my 401k. Thoughts?

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1 or 2, definitely not 3

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Why not 3? If its eligible for penalty free withdrawal it may be a good idea.

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Unless you know you can pay it back quickly, go for 2. Otherwise go for 1

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I would pay it back within the year, but not sure how great of a rate I can get right now and would need to weigh the benefits of that against potential growth % in the market.

I’d borrow against my 401k- you’re paying the interest back to yourself and the money borrowed is tax free (I’m assuming tax impact if you pull from brokerage).

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Provided there’s no penalty

1 - market is at an all time high, good excuse to realize some of those gains. Don’t do 3, especially if you’ll still be in a position to be able to continue to contribute to your 401k. Let your retirement balance continue to grow uninterrupted and your 60 year old self will thank you. Question to the thread - would OP sacrifice company matching if he takes out a 401k loan and then pays it back over time? Would OP get the company match when he’s repaying the loan? If so, another reason not to take out a loan if you have other options.

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Company match has nothing to do with a 401k loan. Taking a 401k loan means you are still contributing your yearly contribution to your 401k - which will get the match in addition to extra payments from your paycheck to cover the loan. Assuming your brokerage account is doing as well or even better than your 401k from a rate of return perspective, I think it becomes a question of taxes. Personally, I would start with a personal loan - if interest rate is really low. Then the 401k loan. The reason I would take a personal or 401k loan is because of cash flow. Same tactics companies use. They take a low interest loan instead of using up their cash flow. And they use their revenue to pay off that low interest loan. If you use your brokerage account fund, you tie up your cashflow And if things do not work out, you can liquidate your brokerage account funds to pay off the loan.

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If you do #1, don’t forget to factor in tax aspect

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Yes, just the gains will be subject to tax.

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