For HP employees, alternatives to 401(k) loans - such as liquidating non-retirement assets or exploring home equity options - 'can preserve long-term retirement savings while meeting short-term needs while preserving long-term security.'
'HP employees nearing retirement should consider 401(k) loan alternatives, as drawing down retirement funds too early may jeopardize their financial future;' exploring unsecured loans or home equity lines of credit might give you more freedom without sacrificing your retirement goals, 'she said.
In this article we will discuss:
1. Finding alternatives to 401(k) loans for financial need.
2. Key options for getting cash fast without sacrificing retirement savings.
3. The tax consequences & advantages of each alternative.
Some people - including HP workers - may need to tap into a 401(k) loan in times of need. But look into alternatives to 401(k) loans that may offer more benefit to your situation and long-term goals. A few options for getting quick cash while preserving your retirement savings are discussed below.
Exploring these alternatives enables people nearing retirement or already retired to make informed decisions based on their particular situation. Preservation and growth of retirement funds must be prioritized alongside immediate needs. Knowing which options exist lets individuals strike a balance between needing to access funds and preserving their retirement savings over a long period of time.
Research from the Investment Company Institute (ICI) found that more than eight out of 10 workers have taken out a 401(k) loan. Yet, by 2020 only about one in 10 people with that option had used it. This suggests people either know about the drawbacks of 401(k) loans or may need more money than a 401(k) loan can provide.
401(k) loans have one catch - IRS rules cap plan loans at 50% of your vested balance or $50,000, whichever is less. For example, you could borrow $9,000 when your 401(k) balance is about the median $18,000. Furthermore, at end 2020 the average unpaid balance of 401(k) loans was less than $8,000 and the median was just over $4,000. Thus a 401(k) loan might not cover your needs.
With limitations like 401(k) loans, here are alternatives that may be better suited for you:
Liquidate Company Stock:
If you own company stock from an employee stock purchase plan (ESPP), selling it can give you instant cash. Stopping contributions to the ESPP may also boost your taxable pay. Selling company stock may raise your tax bill, but losses could allow tax-loss harvesting. Stocks held for one year or less will have short-term capital gains tax rates that are generally higher than long-term rates.
Liquidate Other Assets:
Stocks, bonds or cryptocurrencies in a taxable brokerage account can bring in cash when you sell them. Remember the taxes involved in selling these assets. Selling non-financial assets like unused items or collectibles can also raise funds. Consider also that some payment apps like PayPal and Venmo now issue 1099-Ks - making gains harder to hide from the IRS. Collectibles also carry higher capital gains tax rates.
Reduce Retirement Contributions:
Not every option will give you an instant lump sum, but it frees up monthly cash flow that can be invested elsewhere. Reduced retirement contributions can be redirected to current spending.
Explore Unsecured Loans:
When you lack assets to sell or cannot justify selling them, unsecured loans may be an alternative to 401(k) loans. They work if you don't own a home or lack the equity to borrow against. There are 0% APR credit cards and personal loans.
0% APR Credit Cards:
You can get a 0% APR credit card and spend your money on purchases without paying interest for up to 12 months with minimum monthly payments on time. Others include no annual fees and sign-up bonuses. But failing to pay off the balance before the introductory period ends or missing a monthly payment will carry interest charges that rival those on a 401(k) loan. Those who are disciplined and organized with their money may choose this option.
Personal Loans:
Within a few business days, personal loans let you get a lump sum of $1,000 to $50,000 in several business days. They have fixed interest rates and repayment can be between two and seven years. Good credit can even get you rates on par with the highest high yield savings accounts. But borrowers with sub-average credit could pay up to 36% interest. 401(k) loans would then be more affordable.
For Homeowners 401(k) Loan Alternatives & Tips:
If you own a home with more than 20% equity, you may find borrowing money through these options more advantageous than tapping into retirement savings:
Home Equity Loan:
You borrow a lump sum at a fixed rate and pay it back in equal monthly installments over up to 30 years with a home equity loan. Home equity loans carry interest rates a couple of percentage points lower than personal loans. Note there could be closing costs of 2% to 5% of the borrowed amount. Ideally this is for a large sum with low interest rates.
HELOC - Home Equity Line of Credit:
A HELOC lets you borrow up to your credit limit. A HELOC's interest rate is variable based on market conditions; therefore, monthly payments can be somewhat unpredictable. During the draw period - up to 10 years - you may be required to make interest-only payments. The repayment period is up to 20 years and includes full amortized principal and interest payments. Some lenders waive closing costs if the credit line remains open for three years. HELOCs let you borrow a large amount or less - depending on your needs.
Cash-Out Refinance:
With a cash-out refinance, you get another, larger mortgage. That extra amount is given to you as cash. Or choose a fixed-rate loan for up to 30 years with consistent monthly payments.
Also available:
adjustable-rate loans. Like a home equity loan, closing costs will be between 2% and 5%. This is helpful if you planned to refinance anyway.
Explore these options for alternatives to 401(k) loans so that you can make sound financial decisions and still protect your retirement savings. Assess each option's advantages, including immediate availability, interest rates, repayment terms and potential tax implications. Always consult with a financial advisor or professional about which alternative is best for your long-term financial picture.
Best alternatives to 401(k) loans:
some employers - including HP - offer an 'in-service distribution' or 'in-service withdrawal,' which lets people 59 1/2 or older take money out of their 401(k) while they work. A survey by Willis Towers Watson in 2021 found that about 56% of the top 500 US companies offer this option, giving retirees and those nearing retirement age more control over their retirement savings. Exploring this alternative can be advantageous - people can access their money without the risk of 401(k) loans (source: Willis Towers Watson, 2021).
Find best 401(k) loan alternatives like diving into a chest of financial goodies as you cruise through retirement waters. Like a seasoned sailor searching for ways out of troubled waters, HP workers and retirees search for better financial decisions. Instead of relying on a 401(k) loan alone, use these other vessels to get you there. Selling company stock is like pulling open an ancient chest of treasure, and liquidating other assets is like pulling up old artifacts in your attic. You trim your retirement contributions so the sails are adjusted for better cash flow. Both secured loans and home equity become versatile ships that offer advantages of each kind. Having knowledge and navigation skills can help you sail toward financial security while preserving your retirement savings while meeting your present needs.
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Articles you may find interesting:
- Corporate Employees: 8 Factors When Choosing a Mutual Fund
- Use of Escrow Accounts: Divorce
- Medicare Open Enrollment for Corporate Employees: Cost Changes in 2024!
- Stages of Retirement for Corporate Employees
- 7 Things to Consider Before Leaving Your Company
- How Are Workers Impacted by Inflation & Rising Interest Rates?
- Lump-Sum vs Annuity and Rising Interest Rates
- Internal Revenue Code Section 409A (Governing Nonqualified Deferred Compensation Plans)
- Corporate Employees: Do NOT Believe These 6 Retirement Myths!
- 401K, Social Security, Pension – How to Maximize Your Options
- Have You Looked at Your 401(k) Plan Recently?
- 11 Questions You Should Ask Yourself When Planning for Retirement
- Worst Month of Layoffs In Over a Year!
- Corporate Employees: 8 Factors When Choosing a Mutual Fund
- Use of Escrow Accounts: Divorce
- Medicare Open Enrollment for Corporate Employees: Cost Changes in 2024!
- Stages of Retirement for Corporate Employees
- 7 Things to Consider Before Leaving Your Company
- How Are Workers Impacted by Inflation & Rising Interest Rates?
- Lump-Sum vs Annuity and Rising Interest Rates
- Internal Revenue Code Section 409A (Governing Nonqualified Deferred Compensation Plans)
- Corporate Employees: Do NOT Believe These 6 Retirement Myths!
- 401K, Social Security, Pension – How to Maximize Your Options
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Sources:
1. Kiplinger Staff. 'Considering a 401(k) Loan? What You Can Do Instead.' Kiplinger , Oct. 2023.
2. Thrivent Financial. 'Borrowing From 401(K) Plans: The Basics, Pros, Cons & Alternatives.' Thrivent , Sept. 2023.
3. Forbes Advisor. 'Best 401(k) Loan Alternatives.' Forbes , Aug. 2023.
4. Citizens Bank. 'Home Equity vs. 401(K) Loan.' Citizens Bank , July 2023.
5. Best Egg. '401(K) Loan vs. Personal Loan: How to Choose.' Best Egg , Nov. 2024.
How does HP Inc. ensure that the pension plan benefits will remain stable and secure for employees in the future, and what measures are being implemented to mitigate financial volatility associated with these benefits? Employees of HP Inc. should be particularly aware of how the transition of their pension payments to Prudential will affect their financial security and what protections are in place to ensure that these payments are maintained without disruption.
HP Inc. ensures pension plan benefits remain stable and secure by transferring the payment obligations to Prudential, a highly-rated insurance company selected through a careful review by an Independent Fiduciary. This move is aimed at reducing financial volatility associated with HP's pension obligations while maintaining the same benefit amount for retirees. Prudential's established financial stability provides additional security to employees(HP Inc_November 1 2021_…).
What specific details can HP Inc. employees expect to learn in the Welcome Kit from Prudential, and how will these details help them understand their new payment system? HP Inc. pension participants will need to familiarize themselves with the information outlined in the Welcome Kit to make informed decisions regarding their pension benefits going forward.
The Welcome Kit from Prudential will provide HP Inc. employees with instructions to set up an online account, along with details on managing payments, tax withholdings, and other resources. This information will allow employees to familiarize themselves with Prudential’s system and ensure a seamless transition without disruptions(HP Inc_November 1 2021_…).
In what ways does the selection process for Prudential as the insurance provider reflect the commitment of HP Inc. to the well-being of its employees? Understanding the rationale behind this decision will give HP Inc. employees insights into the fiduciary responsibilities and governance processes that protect their retirement benefits.
The selection of Prudential reflects HP Inc.'s commitment to employee well-being, as it involved the Independent Fiduciary conducting an extensive review of insurance providers. Prudential was chosen based on its financial strength and ability to manage pension payments securely, showing HP's focus on protecting retirement benefits(HP Inc_November 1 2021_…).
How will the annuity payments from Prudential differ from the previous pension payments in terms of tax implications and reporting for HP Inc. employees? It is crucial for employees of HP Inc. to comprehend the tax treatment of their new annuity payments to avoid any potential pitfalls in their personal financial planning.
The annuity payments from Prudential will be taxed similarly to the previous pension payments, though employees will receive two separate 1099-R forms for 2021 (one from Fidelity and one from Prudential). For future years, only a single form will be issued. This ensures employees are aware of how to manage tax reporting(HP Inc_November 1 2021_…).
What resources are available to HP Inc. employees seeking assistance regarding their pension benefits, and how can they effectively utilize these resources to address their concerns? Knowing how to access support and guidance will empower HP Inc. employees to manage their retirement benefits proactively.
HP Inc. employees seeking assistance can access live customer support through Fidelity or contact Prudential directly after the transition. Additionally, the Welcome Kit will include important contact information for managing their benefits, making it easy for employees to address concerns(HP Inc_November 1 2021_…).
How can HP Inc. employees verify the financial health and stability of Prudential, and why is this factor important in the context of their pension benefits? Employees must ask how Prudential's financial standing influences their view of long-term pension security and what metrics or ratings they should consider.
HP Inc. employees can verify Prudential’s financial health by reviewing Prudential's annual financial reports, which are publicly available. Prudential’s strong financial ratings were a key factor in its selection, assuring employees of long-term pension security(HP Inc_November 1 2021_…).
What steps should HP Inc. employees take to update their personal information, such as banking details and tax withholding preferences, following the transition to Prudential? Understanding these processes will ensure a smooth continuation of benefits for HP Inc. employees as they adapt to the new system.
Employees do not need to re-submit their personal information to Prudential, as HP will securely transfer all necessary data, including banking and tax withholding preferences. This ensures the continuation of pension payments without the need for employee intervention(HP Inc_November 1 2021_…).
How does HP Inc. plan to address potential changes in the financial landscape that may affect pension benefits, and what role does the insurance contract with Prudential play in this context? HP Inc. employees should be informed about the company's strategic outlook and how it aims to safeguard pension assets against economic uncertainties.
HP Inc. plans to address potential financial changes through its contract with Prudential, which guarantees pension payments will remain the same. Prudential manages these risks as part of its core business, providing added security against economic volatility(HP Inc_November 1 2021_…).
In what circumstances might HP Inc. employees see changes in their net pension payments following the transition to Prudential, despite assurances that payment amounts will remain unchanged? This understanding will help employees manage their expectations regarding future payments and any adjustments they may need to make.
Employees might see changes in their net pension payments due to tax adjustments or changes in withholding instructions, but the gross payment amount will remain unchanged. Any garnishments or other deductions will continue as before, ensuring consistency in payment structure(HP Inc_November 1 2021_…).
How can HP Inc. employees contact the company directly to learn more about the pension transition process, and what channels are available for them to have their questions addressed? Clear communication lines are essential for HP Inc. employees to ensure they receive timely and relevant information regarding their pension situations.
HP Inc. employees can contact the company through the Fidelity support line or directly through Prudential for any questions about the pension transition. The Welcome Kit and other resources will provide contact details, ensuring employees have access to timely support(HP Inc_November 1 2021_…).
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