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Started By
Message
re: 401k Loans
Posted on 6/5/13 at 4:11 pm to OnTheBrink
Posted on 6/5/13 at 4:11 pm to OnTheBrink
I believe the info you got from the website is the conventional thinking that I am questioning.
What else am I missing? These are some of my thoughts:
1. 401k loans are typically cheap to set up $50 or so. (no underwriting and typically done online)
2. Obviously a default would be bad because of taxes and penalty.
3. What opportunity cost am I losing if I am earning interest on the loan. If the rate is 4% or more it will be a bond like return. We shouldn't assume that 100% of one's 401k is invested in the market.
4. You are paying the money back with after tax money, but you got 50k tax free. You will have to pay the bank back with after tax money on their loan.
5. Another advantage of the 401k loan vs the bank is that it doesn't go on your credit report.
6. One of my best investments in my 401k in 2008 was my 401k loan.
What else am I missing? These are some of my thoughts:
1. 401k loans are typically cheap to set up $50 or so. (no underwriting and typically done online)
2. Obviously a default would be bad because of taxes and penalty.
3. What opportunity cost am I losing if I am earning interest on the loan. If the rate is 4% or more it will be a bond like return. We shouldn't assume that 100% of one's 401k is invested in the market.
4. You are paying the money back with after tax money, but you got 50k tax free. You will have to pay the bank back with after tax money on their loan.
5. Another advantage of the 401k loan vs the bank is that it doesn't go on your credit report.
6. One of my best investments in my 401k in 2008 was my 401k loan.
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