If you are younger than 59 1/2 you will be subject to a 10% early withdrawal penalty for using funds from your 401k, and you will pay ordinary income tax on that money as well---so yes, you may end up in a higher tax bracket, depending on how much money you take out of the retirement account. Using the money from a 401k to pay toward a home equity loan is not an exception to the early withdrawal penalty.
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