As a quick recap, I'm in the process of doing a gut rehab on my (soon to be) primary residence. I have savings and a line of credit that should cover the full cost, but wanted an alternative source of loan money in the case that things go over budget.
So, thanks to JoeTaxpayer's Suggestion on Creating and Borrowing from a Solo 401K, I'm in the process of setting up an account and moving my IRAs over.
So let's assume I can borrow up to $50K from my 401K. Should I now consider this a superior alternative to the line of credit? In other words, all things being equal, should I exhaust this source of money before I even touch the line of credit?
It seemed counter-intuitive to me at first, but:
- Isn't it better to pay myself interest than to pay the bank?
- Isn't the risk lower, since the line of credit has a lien on my property, where failure to pay myself back will only result in having to pay taxes and a penalty?
Are there other downsides I'm not seeing?