401K loans? good option?

  • Guest, it's time once again for the hotly contested and exciting FoH Asshat Tournament!



    Go here and fill out your bracket!
    Who's been the biggest Asshat in the last year? Once again, only you can decide!

mkopec

<Gold Donor>
25,350
37,374
So here is my situation. Back in like 2009 one of my rental properties we owned went into foreclosure. Shit was bad at the time, we lost a renter and could not replace him, and could not cover the place ourselves. so we ended up losing the property. Credit fucked after being close to 800 all my life....

So fast forward to today... My fucking 99 Grand Prix took a shit. And while we do have another car, it was the wifes Expedition so now Im stuck driving that while she has no ride. So the bottom line is that we need a new ride. so I go to the dealership and I can still get a loan and all that, but they want to charge me almost 11% for a car loan. FUCK THAT!

So another option that I have been looking into is a 401K loan. My primary 401K has some real good cash in it and I can borrow up to 50% of it. Not that I would need that much, but I was looking at getting $20K and the rate is 5.9% all being paid back to myself. YEah, I will lose out on the investment of that $20K for 5 yrs, but all in all I see this as a good way out of my predicament.

So any drawbacks to this plan that Im not seeing? I looked into it and I can still contribute to this plan while my loan is out. which is roughly 10% of my salary with the company I work for matching that plus another 5%.
 
6,216
8
How old are you? When do you plan to retire?

If you're far off, then loaning from your 401k is a fabulous idea if you're doing so for the purpose of reducing interest on an existing loan.

Do keep in mind though that your interest will likely skyrocket if you're unable to pay off the loan should you be terminated from your job.
 

mkopec

<Gold Donor>
25,350
37,374
Im 40 now and I have no plans of retiring in the next 20, lol the way shit is going. Also I have no plans of getting terminated, either. Ive been here for the better part of 8 yrs and I consider myself an asset to the job.
 

Shonuff

Mr. Poopybutthole
5,538
790
Im 40 now and I have no plans of retiring in the next 20, lol the way shit is going. Also I have no plans of getting terminated, either. Ive been here for the better part of 8 yrs and I consider myself an asset to the job.
Never take a loan from your 401k. Figure out another way. Think of financial distress as being short term. Focus on your long term.

Not only that, but that car loan at 11% is going to help rebuild your credit score. Pay cash for the car, and your credit score will still be in the dumps.
 

Shonuff

Mr. Poopybutthole
5,538
790
How old are you? When do you plan to retire?

If you're far off, then loaning from your 401k is a fabulous idea if you're doing so for the purpose of reducing interest on an existing loan.

Do keep in mind though that your interest will likely skyrocket if you're unable to pay off the loan should you be terminated from your job.
Bullshit.
 

mkopec

<Gold Donor>
25,350
37,374
So why not? What are the drawbacks? Its only a 5 yr loan. so I either lose from the investment or lose my cash to a bank with the 11% bullshit. Granted you do have a good point on the credit thing.
 
6,216
8
Lyrical thats absolute nonsense

I eagerly await a response with any valid reason to support your bullshit.

Oh also fyi, I have my series 6 and 7.
 

Soygen

The Dirty Dozen For the Price of One
<Nazi Janitors>
28,312
43,093
If you're 40, you should have pretty much all of your 401k in equities(stocks, mutual funds, etc). The money you take out will not see any gains and you then pay it back POST-tax. The car loan may be 11%, but it's possible you'd be making more than that by leaving your pre-taxed money in the equities of your retirement fund. 401k loans are bad ideas and pretty much any financial adviser will say it should be a very last resort option.
 

mkopec

<Gold Donor>
25,350
37,374
Well keep in mind that im on a budget, Im the only one which works so money comes and money goes. The car loan thing at the dealership was all based around a monthly payment, what I could afford, which was around $300 month, give or take, so that basically means I get a more shitty car (around $13K) and 72 month loan where I pay in upwards of $5K interest for the term of the loan. I seriously doubt that the $20K that I would borrow would make $5K in 5 yrs. And either way im still losing 5K, whether its from the car loan or the 401K loan. But at least im getting a better ride with less miles which will undoubtedly last longer in the long term than the $13k one at the dealership for the same $300/month.

Or am I still missing something.
 

Soygen

The Dirty Dozen For the Price of One
<Nazi Janitors>
28,312
43,093
Your 401k is money you should not be touching. If you take a loan out, say 5,000.00. That was (assuming you have a traditional 401k and not a Roth 401k) pre-tax money. You then pay that $5,000.00 back post-tax. Assuming you're in the 25% tax bracket, you'll actually be paying back $6,666.00 + whatever interest and fees the 401k provider charges for the loan. Then on top of all of this, when you do retire, you'll get taxed again on that money when you withdraw it. So you're losing a lot more than just the 5k.

This isn't even going into if you suddenly leave that company or are fired, then you have to pay it all back immediately or get the early withdrawal penalty on it.

Personally, unless I was going to lose my house and/or needed life-saving surgery for myself or a loved one, I don't really see any other situation that would make me take money out of my 401k.
 

Corndog

Lord Nagafen Raider
517
113
Lyrical thats absolute nonsense

I eagerly await a response with any valid reason to support your bullshit.

Oh also fyi, I have my series 6 and 7.
Just because you have your series 6 & 7 doesn't make you a good financial adviser. You're telling me it's sound financial advise to take out a loan against your retirement to buy a second vehicle at 20k? Instead of, just sharing 1 car? Or buying a second car for 1k or less?

OPs problem is clearly making bad decisions. Had a rental, lose renter, lose house. What happens when 20k car wrecks or blows up? Loses car etc. With $300 payments you can afford. That will buy a second vehicle that will commute in 3 months. No it's not a 20k new/used card, but it's what you should be buying.

Even if you "had to have" a new car, buy a kia at like 10k out the door etc. In a situation where you're gonna have to work the rest of your life etc. Borrowing against your retirement is the absolute last thing you want to do. If your retirement is your safety net, as you're wanting to use for a second car. What happens when you really need it? You get hurt and can't work for 8 months? Major repair to where you live now etc.
 

mkopec

<Gold Donor>
25,350
37,374
Well that at least makes more sense Corndog. Also Ive read that the double taxation is a myth. This is incorrect, as the only thing that is double taxed is the interest you are required to pay, which is minimal. If you borrow $10,000 from your retirement plan, you receive $10,000 to use as you want-you don't have to pay taxes on it. Putting that money back into your plan account doesn't involve paying additional taxes. You're just repaying money you borrowed. Yes, you're using after-tax money to replace your pre-tax money. But you also used pre-tax money to, for example, buy a car, or pay off credit cards, so it all evens out.

Also the car is a shitty investment, I agree. And I really dont give a shit what I drive. But I refuse to pay $4K for another beater that can break down at any moment. The car that broke down for me was a 99" Grand Prix which we bought new and got 13 good years out of it. What Im looking at is a used 2011 Impala with about 30K miles on it for about $14K. which will last me another 10 yrs if everything goes well. Im not a car guy so I cannot fix shit other than maybe doing a break job.

And the reason we lost the rental was not because we could not pay both, at the time here in Michigan was a shitty time with jobs and I lost mine. So it was either pay for my primary house or pay for the rental. Judge me as a bad decision maker or whatever, but we all have to do what we have to do and I did what I had to to keep a roof over my families head at the time.
 

Shonuff

Mr. Poopybutthole
5,538
790
Judge me as a bad decision maker or whatever, but we all have to do what we have to do and I did what I had to to keep a roof over my families head at the time.
Over the last few years, life has gotten crappy for a lot of people. Michigan's economy did suck. But now you have a chance to rebuild your credit.
 
6,216
8
Lyrical do yourself a favor and learn to read you fucking lay moron.

My first questions - How old are you? When do you plan to retire? Then I identified if he's terminated he'll suffer a penalty.

Honestly, take a stab at explaining why and how suffering a higher percent interest rate now (versus lowering with a 401k loan) compares to any gain his 401k would see.
 

mkopec

<Gold Donor>
25,350
37,374
When you are terminated from a job with a loan from a 401k, you have bigger things to worry about. Namely, the loan is due in full.

http://blogs.smartmoney.com/ask/2012...-was-laid-off/

You would know that, if you had a series 6 and 7 (as you claim).
Actually, mine does not work like that....

You may only initiate a loan while an active team member with CKNA. If you leave service with an outstanding loan balance you have the option to continue making loan payments on your own via coupon payments.
The fee to convert a loan to coupon payments is $100 which will be deducted from your account.
 

Shonuff

Mr. Poopybutthole
5,538
790
Lyrical do yourself a favor and learn to read you fucking lay moron.
We are all reading your advice and wondering how you think it's sound. First off, claiming to be a Financial Advisor nets you nothing. We made fun of you guys in B-school. The saying was, if you can't get a job doing anything else, you can always be a Financial Advisor. Your job has nothing to do with actual knowledge, but every thing to do with Sales. There's a big difference.

There have been plenty of arguments made here already, that you've not responded to.

Almost every FA worth his shit tells his clients to avoid loans against their 401k.

If you're far off, then loaning from your 401k is afabulousidea if you're doing so for the purpose of reducing interest on an existing loan.
My reading comprehension is fine.
 

Shonuff

Mr. Poopybutthole
5,538
790
yes every FA worth a shit prior to the year 2000, right.
Random info from anonymous posters aside, Mkopec can do a google search on this subject and find that the overwhelming majority of advisors state that, in general, borrowing from your 401k is not a good idea.