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Subject:  Use 401K as collateral? Date:  8/4/2011  2:42 AM
Author:  FoolishMiser Number:  270 of 323


Hypothetical question here:

Let's say I am ready to retire because I've reached retirement age and I have accumulated $2,000,000 though participation in my company's 401K plan. The 401K is diversified appropriately for my age and performs very well, generating an 8% average yearly return.

Now, assuming my living expenses for one year in retirement are $100,000, I seem to have two options at retirement age:

1) Withdraw my yearly living expenses from the 401K plan and pay 15% in capital gains taxes when I do.


2) Use the portfolio value as collateral for a $100,000 personal loan from a bank at a mere 6%. I would pay back this loan by transferring this amount in 401K shares to the bank, per the terms of the loan, plus interest.

At the risk of sounding naive, is option 2 possible as stated here, or through some other means? If so, this would seem to be a decent strategy to avoid paying capital gains taxes on 401K withdrawals.

Any comments are greatly appreciated.
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