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Update- What is the better option to secure a loan, the bank or borrowing from 401k?
Posted on 9/19/22 at 8:20 pm
Posted on 9/19/22 at 8:20 pm
We’ve never had to get a loan before except for a mortgage loan so I’m not sure what our best option is going to be. We need between 35-45k for a new roof and are trying to figure out if the bank is the best option or borrowing against my 401k. Any help is appreciated, we obviously wasn’t planning on having to get a new roof by the end of the year.
This post was edited on 11/21/22 at 5:27 pm
10
Posted on 9/19/22 at 8:24 pm to Bourre
There’s a lot of options.
HE Loan, HELOC, or just a regular loan secured by your assets (for example through LightStream).
Borrowing against your 401k is *usually* a bad option except in very specific circumstances. Some companies allow you to simply borrow against the value, pay yourself interest, the money is never removed from the account, and contributions continue. This is rare, and the only really ideal scenario. Typically, one or multiple of those restrictions will fall on your account.
HE Loan, HELOC, or just a regular loan secured by your assets (for example through LightStream).
Borrowing against your 401k is *usually* a bad option except in very specific circumstances. Some companies allow you to simply borrow against the value, pay yourself interest, the money is never removed from the account, and contributions continue. This is rare, and the only really ideal scenario. Typically, one or multiple of those restrictions will fall on your account.
Posted on 9/19/22 at 9:07 pm to Bourre
45k to redo a roof? Jesus
Posted on 9/20/22 at 7:51 am to LSUtigerME
quote:
Borrowing against your 401k is *usually* a bad option except in very specific circumstances.
It's usually a bad idea because you are losing out on the increase tax deferred earnings. The way things have been the last year, it would have been MUCH BETTER for you to have taken out the 401K loan because you wouldn't have lost the 15-20% many of us have lost in the market this past year.
Posted on 9/20/22 at 8:11 am to Bourre
How bad is the roof? I also need a roof, but I’m inclined to wait for hail.
Posted on 9/20/22 at 8:47 am to Bourre
It is my understanding (not personal experience) that some of the “larger” roofing companies offer financing. May want to ask when you get your quote.
Posted on 9/20/22 at 10:12 am to good_2_geaux
$45k for a roof. What you need are some 2nd, 3rd and 4th quotes.
I have a 4200 sf house and just paid $18k for mine in NOVA
I have a 4200 sf house and just paid $18k for mine in NOVA
Posted on 9/20/22 at 11:37 am to MMauler
quote:
would have been MUCH BETTER for you to have taken out the 401K loan because you wouldn't have lost the 15-20% many of us have lost in the market this past year.
Aren’t you paying the loan back with interest?
I guess you’re buying more shares at a cheaper price?
Posted on 9/20/22 at 12:21 pm to Bourre
Good points above on bad reasons to pull from 401k.
One more...
You are foregoing the return on your 401k across the period of the loan and for the borrowed balance, likely at a time in your life when that return otherwise would have yielded greater return (ie, by the time you retire) than the bank interest rate costs of the loan.
P.S. $45k roof costs, wow!
One more...
You are foregoing the return on your 401k across the period of the loan and for the borrowed balance, likely at a time in your life when that return otherwise would have yielded greater return (ie, by the time you retire) than the bank interest rate costs of the loan.
P.S. $45k roof costs, wow!
Posted on 9/20/22 at 12:40 pm to Paul Allen
quote:
Aren’t you paying the loan back with interest?
Yes. BUT, you're paying the interest to YOURSELF.
The biggest negative of that is that you are essentially turning after-tax dollars (the interest you pay is money that's already been taxed) into "pre-tax" dollars because when you take that money out, it will be taxed AGAIN as ordinary income.
Posted on 9/20/22 at 12:55 pm to MMauler
quote:
The biggest negative of that is that you are essentially turning after-tax dollars (the interest you pay is money that's already been taxed) into "pre-tax" dollars because when you take that money out, it will be taxed AGAIN as ordinary income.
https://thefinancebuff.com/401k-loan-double-taxation-myth.html
Posted on 9/20/22 at 12:58 pm to gpburdell
If it’s a myth then what about the advantages of buying shares at a lower price (with each loan payment) since the market has been down this year.
Would this in and of itself be a great advantage?
Would this in and of itself be a great advantage?
Posted on 9/20/22 at 1:00 pm to gpburdell
401k loan consideration - if you leave your job you have to pay it back or it's treat like early withdraw subject to 10% penalty
Posted on 9/20/22 at 2:54 pm to MMauler
quote:
It's usually a bad idea because you are losing out on the increase tax deferred earnings. The way things have been the last year, it would have been MUCH BETTER for you to have taken out the 401K loan because you wouldn't have lost the 15-20% many of us have lost in the market this past year.
In hindsight, sure, but is it a good idea to take a loan, or essentially sell assets, when they’re already down 20%?
Posted on 9/21/22 at 1:29 pm to slackster
You’d think that in a down market your 401k loan payments are buying more shares than you would in a high performing market.
Wouldn’t your 401k loan payment have more buying power when the market is down?
Wouldn’t your 401k loan payment have more buying power when the market is down?
Posted on 9/21/22 at 1:38 pm to Bourre
The bank. The 401k is for retirement and should be left alone.
Posted on 9/21/22 at 1:45 pm to Bourre
Name and shame. What company wants to charge you $45k for a roof?? Assuming you have a normal non-ot baller sized housed.
Posted on 9/21/22 at 1:50 pm to Paul Allen
quote:
ou’d think that in a down market your 401k loan payments are buying more shares than you would in a high performing market. Wouldn’t your 401k loan payment have more buying power when the market is down?
But you sold all those shares while they were down for the loan in the first place, at least for the majority of loans I’ve seen.
Posted on 9/21/22 at 3:31 pm to slackster
Posted on 9/21/22 at 3:53 pm to slackster
quote:MMauer's original premise is that in hindsight, it'd have worked out had you taken out a loan before the dump.
But you sold all those shares while they were down for the loan in the first place, at least for the majority of loans I’ve seen.
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