Expert: David M Iannopollo - 6/14/2009

Question
I know this may seem backward but... I am self employed with a SEP account valued at about $75K.  The last year has been terrible financially in so many ways for me-earnings down, investments down, loss of social security income, loss of PT job I had just for benefits-insurance.  I must get some debt relief so I can qualify to refin my house.  I have a balloon coming 2/10.  I am thinking of borrowing against my retirement but I don't think I can borrow against my SEP.  Can I roll my SEP into a simple 401K-so I can then take a loan against that money.  I know the retirement account loan is a bad idea but I need a bridge until I can get my home sold ($125K plus in equity).

Answer
Hi Julia,
You are correct that you cannot borrow from your SEP. You can rollover your SEP to a solo 401k (not a SIMPLE) and take a loan from there if you wish. While it's not generally a good idea to take a loan from a retirement account sometimes there may be no other options. When you do sell your home, you may want to consider putting the equity into a high cash value life insurance policy. Besides being a great conservative addition to your portfolio, it would allow you tax free access to your money to avert situations such as you are in now. I hope this helps. Best of luck!

Dave
diannopollo@twcny.rr.com