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Message
Taking a loan out of 401k
Posted on 12/12/23 at 11:21 am
Posted on 12/12/23 at 11:21 am
So to my understanding. The interest rate is 10.5%. but all the interest you pay goes back into 401k. Is this correct?
It just doesn't make sense to me. So I'm paying myself interest on my own money instead of a bank
It just doesn't make sense to me. So I'm paying myself interest on my own money instead of a bank
This post was edited on 12/12/23 at 11:23 am
13
Posted on 12/12/23 at 11:35 am to Higgysmalls
Is there ANY other place you can borrow money from? Is this an absolute necessity? Once you take that first hit of crack it's hard to stop.
This post was edited on 12/12/23 at 7:11 pm
Posted on 12/12/23 at 11:40 am to Higgysmalls
quote:
It just doesn't make sense to me. So I'm paying myself interest on my own money instead of a bank
While true, I'msure if you decided to not pay yourself back you'd still be in the same hot water as owing a bank.
Posted on 12/12/23 at 11:40 am to achenator
quote:
Once you take that first hit of crack it's hard to stop.
True
Posted on 12/12/23 at 11:43 am to Higgysmalls
I just looked at mine. Borrowing from my keogh would be at a 4.75% rate. Yes, you are borrowing from your own account. Of course, you would also lose any potential gains in the market on the money you borrowed.
I did this a few years ago to purchase solar panels. I paid it back within a year. All of the interest was credited back to my account.
I did this a few years ago to purchase solar panels. I paid it back within a year. All of the interest was credited back to my account.
Posted on 12/12/23 at 12:25 pm to achenator
quote:
Once you take that first hit of crack it's hard to stop.
As a person who did this twice I totally agree. It just spirals out of control. You lose control. Fortunately the Lord saw my struggles and blessed me with a second chance.
401K loan is a method of last resort. Once you get in over your head with that you are finished.
Posted on 12/12/23 at 12:46 pm to jangalang
quote:
While true, I'msure if you decided to not pay yourself back you'd still be in the same hot water as owing a bank.
If this happens, the loan becomes a taxable distribution and then you get hit with early withdrawal penalty if under 59.5.
Posted on 12/12/23 at 1:00 pm to Higgysmalls
You know, someone should invent a financial product that you can borrow against and pay back so that you don't have to tap in to qualified account or have to go to a bank.
Posted on 12/12/23 at 1:33 pm to Higgysmalls
I did it years ago for repairs on a rental property. Paid it back on time.
Posted on 12/12/23 at 1:49 pm to Higgysmalls
quote:
It just doesn't make sense to me. So I'm paying myself interest on my own money instead of a bank
Yes you're paying interest to yourself. There is a misconception that many people think you get taxed twice with a loan. It's not true for the principal amount, only the interest.
The biggest catch to watch out for is if you get laid off or leave the company. Many 401k plans require you to pay off the loan within 30 days etc if that happens. Though not a hard rule and specified by each plan. My company 401k plan gave 8 years to pay off the loan regardless of employment status.
Posted on 12/12/23 at 2:51 pm to gpburdell
Yea the big risk is leaving the company (voluntarily or forced) prior to paying back the loan. This bit me in the but when I was younger and decided to leave the company after taking out a loan to pay off some CC debt. The 30 day pay back period was not something I could afford, so I took the tax hit and is something I regret now. But those were the days when I was young, broke, and made bad decisions.
Posted on 12/12/23 at 5:19 pm to blackoutdore
Yeah the whole thing is I gotta buy my son a used car around $20k. With interest rates as high as they are for used. I would rather pay the interest to myself rather than some bank. Paying back is no problem. I have the money in savings. I just don't like touching savings and would rather pay by the month
Posted on 12/12/23 at 5:34 pm to La Place Mike
quote:
You know, someone should invent a financial product that you can borrow against and pay back so that you don't have to tap in to qualified account or have to go to a bank.
Our resident LIRP promoter.
Posted on 12/12/23 at 5:36 pm to Higgysmalls
quote:
Yeah the whole thing is I gotta buy my son a used car around $20k. With interest rates as high as they are for used. I would rather pay the interest to myself rather than some bank. Paying back is no problem. I have the money in savings. I just don't like touching savings and would rather pay by the month
It’s not just the interest though. Your borrowed balance is also out to the market until you pay it back.
Posted on 12/12/23 at 5:37 pm to Higgysmalls
quote:
Yeah the whole thing is I gotta buy my son a used car around $20k
Damn, is that the new baseline? In 2002, my dad bought me a stick shift 1996 Honda Civic for less than $10k. Sucks if a non-giant old car is now $20k. I understand they probably want an SUV or something, and you want to provide for your children, but if you can avoid damaging your financial future by finding something cheaper, but still safe and reliable I hope you can do that.
I see a 2013 Corolla for $14k and less than 80k miles. That sucks.
I've largely watched the car market from afar since we bought our cars used in 2017. It's nuts. I've chosen to repair than get involved with these prices. But at some point, you have no choice but to participate.
This post was edited on 12/12/23 at 5:46 pm
Posted on 12/12/23 at 5:57 pm to Higgysmalls
If you don't want to touch your savings could you just stop contributing to your 401K instead of taking out a loan? Would your monthly contribution equal the car note?
Posted on 12/12/23 at 6:01 pm to Higgysmalls
If you absolutely need a loan I personally think it is one of the better ways of doing it
Posted on 12/12/23 at 6:25 pm to Higgysmalls
This is the way!
Posted on 12/12/23 at 6:28 pm to Higgysmalls
You don’t gotta buy your son a $20,000 used car.
Posted on 12/12/23 at 6:43 pm to CEB
I know a lot of people frown against doing this but I think it’s a good way to get money right now. Yes, your money isn’t working for you but do you really think the market is about to shoot up?
I put more than I normally would in my 401k knowing that if I ever needed that money, I could borrow against it. I feel like over time, by contributing more, it would pay off even if I had to take a loan or 2 out over the life of my 401k.
I put more than I normally would in my 401k knowing that if I ever needed that money, I could borrow against it. I feel like over time, by contributing more, it would pay off even if I had to take a loan or 2 out over the life of my 401k.
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