Cash in my SEP ???

[Slyguy75]

Normally I wouldn't even consider cashing out my SEP (especially since I'm only 38) but here is my situation.

Several years ago I took out a second mortgage in the form of an interest only loan. My payments are $465/mo and the balance is around $48,000. I have been paying on it for 4 years now and the balance hasn't moved since it's interest only. I have another 11 years on the loan and then the balance will be $43,000 of which I have to pay off at that time.

Unfortunately, I don't make enough money right now to pay off the second on my own or I would just do that. I have about $40,000 in my SEP and I know after fees and taxes I won't be able to completely pay off the second but I will cut it way down. What should I do??? Please keep in mind that's $5400 a year in interest only payments I'm throwing out the window.

Feel free to tell me what an idiot I was for getting the loan in the first place but trust me I know!

Your advice is greatly appreciated.

[Slyguy75]

Additional info

My home is currently worth around $130,000. My first mortgage is approximately $98,000 with a 6% interest rate.

I don't have any other debt but with 3 kids to care for my monthly earnings pretty much covers my expenses. I do have another $50,000 in a ESOP and 401K so I won't be completely depleting my retirement funds.

I will also state that one reason this has become an issue suddenly for me is that I have concerns with the stock market and our economy moving forward and then I could find myself with the interest only 2nd mortgage and a SEP that has dropped in value.

[Petunia 100]

My home is currently worth around $130,000. My first mortgage is approximately $98,000 with a 6% interest rate.

I don't have any other debt but with 3 kids to care for my monthly earnings pretty much covers my expenses. I do have another $50,000 in a ESOP and 401K so I won't be completely depleting my retirement funds.

I will also state that one reason this has become an issue suddenly for me is that I have concerns with the stock market and our economy moving forward and then I could find myself with the interest only 2nd mortgage and a SEP that has dropped in value.

Is there a reason you want to keep your 6% mortgage? Why not refi into a 4%ish mortgage? Your savings could then be re-directed towards your home equity loan principal.

No, I don't think you should cash in your retirement money to pay towards your home equity loan. You need more retirement money, not less. Paying additional taxes and penalties needlessly is not going to help you improve your bottom line.

You are right that your investments will drop in value at some point. They will also rise in value at some point. In fact, they will rise and fall many times over your investing life. That is not a reason to cash them in. Is it possible that your current asset allocation plan is too aggressive for you? If US stock market swings are keeping you up at night, then you likely have too much invested in US stocks. Perhaps you should be keeping more in bonds and foreign stocks?

Do you have a written budget? If not, start working on one. Do you have unnecessary expenses? Look to cut those before considering such a drastic and expensive measure. You should also consider stopping new contributions before considering cashing out what you have already accumulated.

[snafu]

You have acknowledged that second mortgage was a poor decision and we don't want you to compound that mistake by paying penalties and tax on retirement funds when you will need every dime in later years. Would you be willing to post your spending for review to try and find some modest reductions? Would you be willing to do the work to find a Credit Union, bank or mortgage broker to consolidate and refinance?

Depending on age, DKs should be seeking age appropriate, part time work to help with their expenses. Until the ego centered 90's, it wasn't unusual for teens to modestly help out with family expenses especially if family finances got rough.