For Intel 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.'
'Intel 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 Intel 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 Intel - 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, Intel 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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- Corporate Employees: 8 Factors When Choosing a Mutual Fund
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- 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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- 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!
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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 the Intel Pension Plan define the eligibility criteria for employees looking to retire, and what specific steps must they take to determine their benefit under the Intel Pension Plan?
Eligibility Criteria for Retirement: To be eligible for the Intel Pension Plan, employees must meet specific criteria, such as age and years of service. Benefits are calculated based on final average pay and years of service, and employees can determine their benefits by logging into their Fidelity NetBenefits account, where they can view their projected monthly benefit and explore different retirement dates(Intel_Pension_Plan_Dece…).
What are the implications of choosing between a lump-sum distribution and a monthly income from the Intel Pension Plan, and how can employees assess which option is best suited for their individual financial circumstances?
Lump-Sum vs. Monthly Income: Choosing between a lump-sum distribution and monthly income under the Intel Pension Plan depends on personal financial goals. A lump-sum provides flexibility but exposes retirees to market risk, while monthly payments offer consistent income. Employees should consider factors like their financial needs, life expectancy, and risk tolerance when deciding which option fits their situation(Intel_Pension_Plan_Dece…).
In what ways can changes in interest rates affect the lump-sum benefit calculation under the Intel Pension Plan, and why is it essential for employees to be proactive about their retirement planning concerning these fluctuations?
Interest Rates and Lump-Sum Calculations: Interest rates directly affect the lump-sum calculation, as higher rates reduce the present value of future payments, leading to a smaller lump-sum benefit. Therefore, it's crucial for employees to monitor interest rate trends when planning their retirement to avoid potential reductions in their lump-sum payout(Intel_Pension_Plan_Dece…).
How do factors like final average pay and years of service impact the pension benefits calculated under the Intel Pension Plan, and what resources are available for employees to estimate their potential benefits?
Impact of Final Average Pay and Years of Service: Pension benefits under the Intel Pension Plan are calculated using final average pay (highest-earning years) and years of service. Employees can use available tools, such as the Fidelity NetBenefits calculator, to estimate their potential pension based on these factors, giving them a clearer picture of their retirement income(Intel_Pension_Plan_Dece…).
How should employees approach their financial planning in light of their Intel Pension Plan benefits, and what role does risk tolerance play in deciding between a lump-sum payment and monthly income?
Financial Planning and Risk Tolerance: Employees should incorporate their pension plan benefits into broader financial planning. Those with a lower risk tolerance might prefer the steady income of monthly payments, while individuals willing to take investment risks might opt for the lump-sum payout. Balancing these decisions with other income sources is vital(Intel_Pension_Plan_Dece…).
What considerations should Intel employees evaluate regarding healthcare and insurance needs when transitioning into retirement, based on the guidelines established by the Intel Pension Plan?
Healthcare and Insurance Needs: Intel employees approaching retirement should carefully evaluate their healthcare options, including Medicare eligibility, private insurance, and the use of their SERMA accounts. Considering how healthcare costs fit into their retirement budget is crucial, as these costs will likely increase over time(Intel_Pension_Plan_Dece…).
How can employees maximize their benefits from the Intel Pension Plan by understanding the minimum pension benefit provision, and what steps can they take if their Retirement Contribution account falls short?
Maximizing Benefits with the Minimum Pension Provision: Employees can maximize their pension benefits by understanding the minimum pension benefit provision, which ensures that retirees receive a certain income even if their Retirement Contribution (RC) account balance is insufficient. Those whose RC accounts fall short will receive a benefit from the Minimum Pension Plan (MPP)(Intel_Pension_Plan_Dece…).
What resources does Intel offer to support employees in their retirement transition, including assessment tools and financial planning services tailored to those benefiting from the Intel Pension Plan?
Resources for Retirement Transition: Intel provides several resources to support employees' transition into retirement, including financial planning tools and access to Fidelity's retirement calculators. Employees can use these tools to run scenarios and determine the most beneficial pension options based on their financial goals(Intel_Pension_Plan_Dece…).
What strategies can retirees implement to manage taxes effectively when receiving payments from the Intel Pension Plan, and how do these strategies vary between lump-sum distributions and monthly income options?
Tax Strategies for Pension Payments: Managing taxes on pension payments requires strategic planning. Lump-sum distributions are often subject to immediate taxation, while monthly income is taxed as regular income. Retirees can explore tax-deferred accounts and other strategies to minimize their tax burden(Intel_Pension_Plan_Dece…).
How can employees of Intel contact Human Resources to get personalized assistance with their pension questions or concerns regarding the Intel Pension Plan, and what specific information should they be prepared to provide during this communication?
Contacting HR for Pension Assistance: Intel employees seeking assistance with their pension plan can contact HR for personalized support. It is recommended that they have their employee ID, retirement dates, and specific pension-related questions ready to expedite the process. HR can guide them through benefit calculations and options(Intel_Pension_Plan_Dece…).
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