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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 2:53 pm to JonTheTigerFan
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.
1
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.
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