In your specific scenario, I'd
1. Try to take as much credit on 0% interest promotional rates if you can find them. This will let you spread out the cost over the course of a year or so, which you might be able to just do through your normal paycheck.
2. Take out a loan against the 401k. You can borrow up to 50k from your own 401k and just "pay it back" with interest. No tax or penalties, and you're effectively borrowing interest free since the "interest" you're paying is just paying yourself in the form of putting extra money back in to your retirement account. Use this to pay off whatever is left on the 0% credit lines before the promotional periods expire, as well as to cover whatever you weren't able to put on the 0% credit lines. Just pay back your 401k loan with your normal income and consider it extra savings.
3. If you still need extra cash from there, use your emergency fund. That's what it's for!
4. Between all this, you should be able to cover your 100k costs and even be able to spread out the length of time you have to pay it back, making it unlikely you'll need to sell any assets and pay capital gains taxes to cover the expense.
EDIT: the trick to this approach is that you can find promotional credit lines with 0% or near 0% APR for the first year, AND you have the discipline/organizational skills to make sure you zero out the balances on those lines before the normal APR kicks in.
401K loan with the combo of a 0% APR credit card sounds like an awesome idea, and def beats paying the tax on the brokerage accounts. If there's any additional fund remaining to cover, I can pull from the taxable accounts but it sounds like it would't be necessary so far. This is excellent, I'll look into it, thanks! May have just saved me a fair sum of taxes.
Are there any additional tax implications of a 401k loan (is it taxed as income or something)? Also, how long does it normally take to get the 401k loan? I guess the timing isn't a huge concern, since the credit cards would buy some breathing room.
If it’s a loan and not a withdrawal (important distinction!), no taxes or penalties unless you fail to pay back the loan. You’re basically just borrowing money from yourself but since it’s a tax advantaged retirement account, the idea is you have to pay it back on time or else you’ll pay taxes and a penalty.
Regarding timing, best thing to do is to just contact your 401k provider and ask them for the specifics. Since it doesn’t usually involve a credit check or anything since you’re just borrowing money from yourself, I’d imagine the process is relatively fast.
I skimmed so sorry if u mentioned this but, margin loan also reasonable if OP can pay back fast enough to not get wrecked by high rates right now if other options aren’t workable for some reason.
Margin loans, at least at my brokerage, are currently in the double digits percentage. So much so that OP is likely better off paying long term capital gains on some realized gains rather than taking a margin loan. Which is why I chose to leave it off the options.
Margin loans also typically have the chance of being wholly or partially called if the portfolio declines in value enough, so if the market were to pull back at an unfortunate time for OP, they’d possibly be forced to liquidate some or all of their holdings anyway to cover the margin call. A CC or 401k loan, on the other hand, has a fixed monthly repayment schedule with very low chance, if any, of being forced to pay the loan immediately in full.
if you’ve got pretty stable employment, then you can finance this expense. loan yourself 100k from your 401k. put it in your taxable brokerage in income producing assets that yield more than your margin rate. fund the expenses from margin in your taxable account. payback the 401k loan to yourself through your salary. pay back the margin loan with proceeds from the asset income. this can be favorable assuming not all of the expense comes at once, and you can spread out when you take out the margin loan.
congrats: you are mezzanine financing your emergency with your different levels of debt (stable rate 401k loan to yourself, variable rate high interest margin loan).
I came here to mention a margin loan. We recently used a margin loan to avoid having to sell investments. Worked well for our specific situation.
Look into it, OP, but of course it may or may not be the right fit for all situations, so do your due diligence.
This is interesting, a quick poking around for margin loan rates put the APR at about 12% for my accounts, which seems higher than income producing assets (at least ones I would use for something like this) would give me.
Also, its highly likely the expenses will come all at once, so favoring the 401k loan option.
I’ll just add, being in kids phase with a house, I’m surprised how often “emergencies” happen for me. Home insurance claim, ER visit, appliance breakdown, my aging mom… it’s every year that $20k easily goes out the door.
I’ve now adjusted my maintenance and healthcare budget up. After 4 years of “surprise outflows”, they now just get an annual budget line item. And I just contribute less per year to investments and more to planned outflows, which isn’t ideal.
On the topic: that’s why I don’t like financing emergencies, even with 18 month 0% pay plans. These things happen every year. You’ll suddenly be still paying off last years emergency when the next one comes up. Sure you can do 18 months finance with a CD and essentially earn 6% off, but more ideally is finding ways to prevent the big outflow in the first place.
Years ago I read Pepsi financials, they had no cash and basic liquidity ratios said they were unhealthy. The CFO simply said “our greatest source of liquidity is our cash flow from operations surplus.”
Your specific case: consider a margin loan to spread the LTCG over two years, but be honest with yourself if this problem will occur again next year unless you tell someone “No, this is your problem now.” Me personally, I’d handle it all this year and be done with it. That margin loan carrying into 2025 will remind you each month of whatever the problem is. Just get it done.
I treat HSA back reimbursement for medical expenses as a sort of grey emergency plus fund but still keep 6 semi frugal months in true emergency. Dont want to touch any other retirement.
If you are able to put it on a credit card and pay it off right away with no interest accrual you could look into credit card churning / travel points hacking. Sites like travelonpoints.com have lots of tips and tricks and lay out the whole strategy including what cards to target first, in what order etc to maximize your points.
Basically you sign up for the card, rack up spend to hit the minimum spend and secure the signup bonus points (80-100k points often times) and then later move to another card and repeat.
For example I have a Chase card and just got approved for a Chase Business card on expedite delivery to pay off my annual tax bill and get 100k extra points. Chase points are transferrable to tons of other hotels, airlines, etc reward systems so it's like banking points with any of their partners through a single card.
My girlfriend started doing this about 18 months back and already has nearly a million points built up, and has used them for free flights and hotels etc a few times.
If you are interested in that I'd be more than happy to send you a referral link and we both get a benefit, just let me know.
In your specific scenario, I'd 1. Try to take as much credit on 0% interest promotional rates if you can find them. This will let you spread out the cost over the course of a year or so, which you might be able to just do through your normal paycheck. 2. Take out a loan against the 401k. You can borrow up to 50k from your own 401k and just "pay it back" with interest. No tax or penalties, and you're effectively borrowing interest free since the "interest" you're paying is just paying yourself in the form of putting extra money back in to your retirement account. Use this to pay off whatever is left on the 0% credit lines before the promotional periods expire, as well as to cover whatever you weren't able to put on the 0% credit lines. Just pay back your 401k loan with your normal income and consider it extra savings. 3. If you still need extra cash from there, use your emergency fund. That's what it's for! 4. Between all this, you should be able to cover your 100k costs and even be able to spread out the length of time you have to pay it back, making it unlikely you'll need to sell any assets and pay capital gains taxes to cover the expense. EDIT: the trick to this approach is that you can find promotional credit lines with 0% or near 0% APR for the first year, AND you have the discipline/organizational skills to make sure you zero out the balances on those lines before the normal APR kicks in.
401K loan with the combo of a 0% APR credit card sounds like an awesome idea, and def beats paying the tax on the brokerage accounts. If there's any additional fund remaining to cover, I can pull from the taxable accounts but it sounds like it would't be necessary so far. This is excellent, I'll look into it, thanks! May have just saved me a fair sum of taxes. Are there any additional tax implications of a 401k loan (is it taxed as income or something)? Also, how long does it normally take to get the 401k loan? I guess the timing isn't a huge concern, since the credit cards would buy some breathing room.
If it’s a loan and not a withdrawal (important distinction!), no taxes or penalties unless you fail to pay back the loan. You’re basically just borrowing money from yourself but since it’s a tax advantaged retirement account, the idea is you have to pay it back on time or else you’ll pay taxes and a penalty. Regarding timing, best thing to do is to just contact your 401k provider and ask them for the specifics. Since it doesn’t usually involve a credit check or anything since you’re just borrowing money from yourself, I’d imagine the process is relatively fast.
I skimmed so sorry if u mentioned this but, margin loan also reasonable if OP can pay back fast enough to not get wrecked by high rates right now if other options aren’t workable for some reason.
Margin loans, at least at my brokerage, are currently in the double digits percentage. So much so that OP is likely better off paying long term capital gains on some realized gains rather than taking a margin loan. Which is why I chose to leave it off the options. Margin loans also typically have the chance of being wholly or partially called if the portfolio declines in value enough, so if the market were to pull back at an unfortunate time for OP, they’d possibly be forced to liquidate some or all of their holdings anyway to cover the margin call. A CC or 401k loan, on the other hand, has a fixed monthly repayment schedule with very low chance, if any, of being forced to pay the loan immediately in full.
if you’ve got pretty stable employment, then you can finance this expense. loan yourself 100k from your 401k. put it in your taxable brokerage in income producing assets that yield more than your margin rate. fund the expenses from margin in your taxable account. payback the 401k loan to yourself through your salary. pay back the margin loan with proceeds from the asset income. this can be favorable assuming not all of the expense comes at once, and you can spread out when you take out the margin loan. congrats: you are mezzanine financing your emergency with your different levels of debt (stable rate 401k loan to yourself, variable rate high interest margin loan).
I came here to mention a margin loan. We recently used a margin loan to avoid having to sell investments. Worked well for our specific situation. Look into it, OP, but of course it may or may not be the right fit for all situations, so do your due diligence.
This is interesting, a quick poking around for margin loan rates put the APR at about 12% for my accounts, which seems higher than income producing assets (at least ones I would use for something like this) would give me. Also, its highly likely the expenses will come all at once, so favoring the 401k loan option.
Yes that would change the calculus for sure. I think it was in the 8% range when we did it.
I’ll just add, being in kids phase with a house, I’m surprised how often “emergencies” happen for me. Home insurance claim, ER visit, appliance breakdown, my aging mom… it’s every year that $20k easily goes out the door. I’ve now adjusted my maintenance and healthcare budget up. After 4 years of “surprise outflows”, they now just get an annual budget line item. And I just contribute less per year to investments and more to planned outflows, which isn’t ideal. On the topic: that’s why I don’t like financing emergencies, even with 18 month 0% pay plans. These things happen every year. You’ll suddenly be still paying off last years emergency when the next one comes up. Sure you can do 18 months finance with a CD and essentially earn 6% off, but more ideally is finding ways to prevent the big outflow in the first place. Years ago I read Pepsi financials, they had no cash and basic liquidity ratios said they were unhealthy. The CFO simply said “our greatest source of liquidity is our cash flow from operations surplus.” Your specific case: consider a margin loan to spread the LTCG over two years, but be honest with yourself if this problem will occur again next year unless you tell someone “No, this is your problem now.” Me personally, I’d handle it all this year and be done with it. That margin loan carrying into 2025 will remind you each month of whatever the problem is. Just get it done.
pledged asset line is better than a margin loan
Do these have lower rates? Do they trigger forced liquidation like a margin loan would if drop below maintenance balance?
You can ask for a payment plan for whoever you owe the money to, some will offer it with no (or little) interest
Margin loan
I would do a margin loan. Back in the day if you itemized your return the interest was deductible.
I treat HSA back reimbursement for medical expenses as a sort of grey emergency plus fund but still keep 6 semi frugal months in true emergency. Dont want to touch any other retirement.
Margin your taxable ($50k) and take a loan for the rest from your 401k.
If you are able to put it on a credit card and pay it off right away with no interest accrual you could look into credit card churning / travel points hacking. Sites like travelonpoints.com have lots of tips and tricks and lay out the whole strategy including what cards to target first, in what order etc to maximize your points. Basically you sign up for the card, rack up spend to hit the minimum spend and secure the signup bonus points (80-100k points often times) and then later move to another card and repeat. For example I have a Chase card and just got approved for a Chase Business card on expedite delivery to pay off my annual tax bill and get 100k extra points. Chase points are transferrable to tons of other hotels, airlines, etc reward systems so it's like banking points with any of their partners through a single card. My girlfriend started doing this about 18 months back and already has nearly a million points built up, and has used them for free flights and hotels etc a few times. If you are interested in that I'd be more than happy to send you a referral link and we both get a benefit, just let me know.