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re: Is borrowing against your 401(k) for a home down payment a good idea?
Posted on 12/15/13 at 3:31 pm to lsu711
Posted on 12/15/13 at 3:31 pm to lsu711
quote:
I don't see how a 401k can be used as collateral. With some restrictions, the plan manager can allow you to take money out of the stock market and invest it in a private loan. So in this case the $30k would remain in his 401k balance, but $30k would now be invested in a loan at ~4.5% rather than the stock market at ~10%.
Well, I'm just telling you how my plan works. In mine, you also pay the 3.75% interest back into the "Common Assets" portion of your plan. This is from my plan's website:
When you borrow money from the Savings Plan, the assets in your Savings Plan Account serve as collateral for the loan. When you have an outstanding loan, withdrawals/distributions that will reduce the collateral value below the amount of your outstanding loan balance will be restricted.
1
Posted on 12/16/13 at 7:41 pm to JonTheTigerFan
quote:
Well, I'm just telling you how my plan works. In mine, you also pay the 3.75% interest back into the "Common Assets" portion of your plan. This is from my plan's website: When you borrow money from the Savings Plan, the assets in your Savings Plan Account serve as collateral for the loan. When you have an outstanding loan, withdrawals/distributions that will reduce the collateral value below the amount of your outstanding loan balance will be restricted.
Exactly how mine works. In fact, I'd be willing to bet we work for the same company. People on this board don't understand how it works because it's not typical. That said, as it doesn't reduce your 401k balance, it's an excellent way to finance purchases or significant events.
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