401k loan question

Pay it off. 401k loans are for broke people

Like everyone else has already said, get that balance off your books immediately. Like right now; do not delay a minute, before you decide to do something else with that money.

If you change or lose your job, you'll either have to pay it back immediately or expose the amount you borrowed to taxes, which are astronomical in these scenarios.

Besides, the longer you have it out of that account the longer you'll have it uninvested, exposed to inflation and not working for you. You'll eventually have to get it back in there anyway, you may as well do it now and get it back working for you.

quote:

---

If you leave your company, you will have to pay it all back quickly anyways,

---

Not true; it's up to the 401k plan to decide that. My 401k plan doesn't requires loans to be paid back early if you leave the company.

quote:

---

Pay it off. 401k loans are for broke people

---

broke people don't contribute to 401k

quote:

---

My gut says pay the balance and get back that $300 each month.

---

Not true at all.

You're paying interest to yourself when you take out a 401K loan. So, in a sense you're not losing money or making money on that loan. You're just paying back yourself.

The PROBLEM is the taxes. When you are paying interest every paycheck, you are basically putting in after-tax dollars into a 401K that will come out eventually as ordinary income. ALL OF IT.

If you were to invest that money in stock, you would eventually be taking out any investment gains as capital gains taxed at a lower rate.

So, for example, let's say that over the course of the loan, you pay yourself $10,000 in interest payments. When you take that money out of the 401K (or IRA if you roll it over), the entire $10,000 will be taxed as ordinary income. And, THIS IS AFTER TAX DOLLARS THAT YOU PAID.

On the other hand, if you just put that $10,000 in stock over the next 17 years, you wouldn't pay anything on the $10K when you eventually sell and all the gain on that $10K will be capital gains.

quote:

---

True, but you do get until your next tax return is due (including extensions). So, if you leave your job in January 2022, you would have until October 2023 to pay it back. And, during that time you can still pay it back little by little

---

I don't think that's accurate. I think there's a deadline either 30 or 60 days.

quote:

---

I don't think that's accurate. I think there's a deadline either 30 or 60 days.

---

It depends on the plan, but I believe most plans allow for this...

Effective January 1, 2018, if the plan loan offset is due to plan termination or severance from employment, instead of the usual 60-day rollover period, you have until the due date, including extensions, for filing the Federal income tax return for the taxable year in which the offset occurs.

quote:

---

The 20 year payback seems a little hard to believe.

---

If to purchase a home you can get longer terms. I tried that and it was a PITA to prove you were using it for that. More heavily scrutinized than the primary mortgage. I finally just said WTF and did the regular 5 year amort.

Also many have said you have to pay it back or pay penalties & taxes on it if you leave your employer. Not necessarily true. Mine is through John Hancock and you can still keep the loan on it's original terms... JH just requires you to put it on auto pay.

Pay it off immediately