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Started By
Message
re: Taking a loan out of 401k
Posted on 12/12/23 at 6:49 pm to LSU1018
Posted on 12/12/23 at 6:49 pm to LSU1018
quote:
Yes, your money isn’t working for you but do you really think the market is about to shoot up?
The S&P 500 is up 20% this year. You may have accounted for this, but I don't think people should really guess the direction of the market as they will likely guess wrong. It's a false variable in my mind.
This post was edited on 12/12/23 at 6:50 pm
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Posted on 12/12/23 at 7:19 pm to slackster
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
Shop around with credit unions for a better rate. Is a HELOC a possibility? I'd pay a higher rate, buckle down and pay extra on a car loan or a HELOC before I bust into the retirement locked box. The difference between 5.5% and 9% on a 48 month $20k loan is about $30 a month or $1500 over 4 years. I'd just suck it up.
Posted on 12/12/23 at 7:31 pm to Higgysmalls
Would a secured loan not be an option here since you have the funds in savings? You’ll be paying the lender interest instead of yourself but you wouldn’t have the risk of being ‘out of the market’ and I believe the rates are much lower on these loans.
If I were you I’d just use my savings to purchase the car and aggressively pump it back up.
If I were you I’d just use my savings to purchase the car and aggressively pump it back up.
Posted on 12/12/23 at 7:44 pm to Higgysmalls
quote:
It just doesn't make sense to me.
it makes lots of sense to us with solo401ks.
this trick is used my many to make your contribution even bigger.
Posted on 12/12/23 at 8:03 pm to tygerfan1
quote:
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?
In this scenario he’d likely be giving up whatever match he’s getting from his company which would arguably be a higher net loss than taking a loan on the 401k right? I’m assuming the company match is higher than the net gain of the funds in the market.
Posted on 12/12/23 at 9:05 pm to Fat Bastard
quote:
it makes lots of sense to us with solo401ks. this trick is used my many to make your contribution even bigger.
How does that math work?
You borrow at 8-10% to put in more after tax money that will be taxed at withdrawal and run the risk of the market outstripping the loan interest anyway?
Posted on 12/12/23 at 11:15 pm to cusoonkpd
quote:
I did this a few years ago to purchase solar panels
Posted on 12/13/23 at 6:29 am to Higgysmalls
One thing to keep in mind, if you put the money in pre-tax in your 401k, you'll be paying the loan back with after-tax monies, so you lost the tax benefit.
Posted on 12/13/23 at 6:43 am to SuperSaint
Saint: I purchased them about 10 or 12 years ago. $25,000 total. Federal and Louisiana state government was offering $20,000 tax credits between the two. I needed $5,000.
Home is 3200 sq ft heated and cooled. I am all electric. I just paid my cleco bill. It was $77 for the month. During summer months, I never pay more than $200/month. During winter months, between $65 and $110/ month.
Would never have paid full price for them, but you left a ton of money on the table not placing them beck then.
Home is 3200 sq ft heated and cooled. I am all electric. I just paid my cleco bill. It was $77 for the month. During summer months, I never pay more than $200/month. During winter months, between $65 and $110/ month.
Would never have paid full price for them, but you left a ton of money on the table not placing them beck then.
Posted on 12/13/23 at 8:32 am 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
My oldest bought a 2014 Civic with 120k miles for $6400 in August 2020. She worked at CFA while in high school and saved here money and bought it for cash
Fast forward 2 years and my second daughter lookign for a car, and the market was crazy, her car budget was $10-12k. with her working (starbucks) in high school as well and taking here graduation money she was at $8k. we ended up having to loan her $4k to get her vehicle, which she paid off by the end of the year.
No reason your son cant get a cheaper car, and work to pay for it himself for the most part.
With both daughters owning their car outright on their own merits at 18 puts them ahead of most their age. and since they paid for it with their money, they appreciate what it takes to buy a car.
Posted on 12/13/23 at 8:47 am to rocksteady
quote:
If I were you I’d just use my savings to purchase the car and aggressively pump it back up.
Yeah this.
Posted on 12/13/23 at 9:30 am to Higgysmalls
Yeah, sounds good, doesn't work. I did it early in my career to fund various home improvement projects and it definitely takes a toll on your 401K.
Posted on 12/14/23 at 3:24 am to Higgysmalls
So you are willing to take a hit on your 401k? Buy him a beater or better yet let him buy his own car? How old is he?
Posted on 12/14/23 at 10:06 am to slackster
quote:
How does that math work?
I am curious too. Maybe his solo 401K a Roth?
Posted on 12/14/23 at 10:21 am to tigeraddict
quote:
With both daughters owning their car outright on their own merits at 18 puts them ahead of most their age. and since they paid for it with their money, they appreciate what it takes to buy a car.
Although I don’t have children, it made me smile and nod in approval as I read your post.
Posted on 12/14/23 at 12:48 pm to Higgysmalls
quote:
I just don't like touching savings and would rather pay by the month
You're just fooling yourself. Why not use savings then monthly replenish it instead of risking having your investment out of the market and buying in at higher price? If the real emergency happens tap the 401k then as a last resort.
I'm not a market timer but those saying don't expect the market to go up aren't considering the potential large flow of capital into stock market if rates start coming down as predicted.
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