quote:
Consider the gap this would create in your 401k. You will pay yourself interest, but it will probably be around half of what your 401k returns. That gap could exceed the cost of PMI or whatever other means you have to borrow the $30k.

Not all 401k plans are set up this way. In my plan, you just borrow the money with the funds in the plan as collateral. The money you borrow still sees the same growth as it would if you didn't borrow against it. If his 401k is setup this way, I don't see any issue with it.

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Posted by lsu711

Member since Sep 2003

13225 posts

Posted on 12/15/13 at 2:53 pm to JonTheTigerFan

quote:
you just borrow the money with the funds in the plan as collateral.

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%.

Another consideration is that you pay back the loan with after-tax dollars which will then be taxed a second time when you go to withdraw at retirement. You lose the advantage of a 401k on the amount borrowed.

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Posted by Putty

Member since Oct 2003

25500 posts

Posted on 12/16/13 at 5:51 pm to JonTheTigerFan

quote:
In my plan, you just borrow the money with the funds in the plan as collateral.

In that case you neither "borrowed from yourself" not "paid yourself interest." Rather, you took a bank loan and posted exempt assets as collateral and added serious tax consequences to the list of your problems in the event of a default. Why not just take a bank loan?

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