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Asked 4/8/2007
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401K loan vs breaking a CD? I have a dilemma, I need 100K for few months. I have CD's which will mature in 4 months but I need the money today for down payment on a house. If I break the CD, I pay penalties (upto 6 months of interest around $2.5K). I also have $200K in 401K, I can potentially take $100K loan and repay it in 3-6 months as soon as all my CD's mature. In addition the interest I pay on 401K is after tax money. |
Answer 1/5 - Submitted 4/8/2007
Borrowing against your 401K is generally not advised. Are you that convinced that the house won't be available when your CDs mature? If you absolutely have to break the CD, do that...but I would explore other options first. You may even be able to get a short-term loan from the bank that holds your CD...talk to your lender about an unsecured loan. They would obviously trust you, knowing that you have the cash.
Answer 2/5 - Submitted 4/8/2007
If you break the CD you can deduct the penalty for early withdrawal on your 2007 taxes. If you borrow from your 401(k) and the market comes back...it will cost you more.
Answer 3/5 - Submitted 4/8/2007
Compare interest rates.
Our 401k loans money @ 5%. Check yours and compare it to your loan on the cd.
Do not cancel the CD!!!
Also ask the mortage company for a second and borrow the 100k for 4 months. They will do it. Plus you can right off the expenses..
Just compare and see who gives you the best deal
good luck:)
Answer 4/5 - Submitted 4/8/2007
do not borrow against your 401k you could miss out on potential upswing in the market since it just went down it is recovering cash out the CD
Answer 5/5 - Submitted 4/10/2007
well since, by law, you can only get a maximum of $50,000 in a loan from your 401k I think your answer is already made for you. Break the CD if you absolutely need the money right now.
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