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CTSSHAH
@ctsshah
#401kLoanEdition #SaturdaySchool So I have run out of retirement savings accounts to make videos on (at least that I am aware of) and so I am still trying to stick to Saturday School w/ content that will be about tax efficiency or retirement savings account in some way. This one is a stretch but I felt it was one definitely worth covering, because life comes at us hard and fast especially the last 1.5 years. I hope this helps people understand an option that they may have available. Not saying you should use this without caution ... but sometimes the least worst choice is the best option you have. WHO should be aware of a 401k Loan? - Anyone who has a 401k retirement savings account should be aware that this option is availble to them in the event there is a sudden need for liquidity and cash on hand - "When done for the right reasons, taking a short-term 401(k) loan and paying it back on schedule isn’t necessarily a bad idea." - Investopedia WHAT are 401k Loans? - "Receiving a loan from your 401(k) is not a taxable event unless the loan limits and repayment rules are violated, and it has no impact on your credit rating." - Investopedia - A tax free loan from your 401k up to $50,000 or 50% of assets (whichever is less) that typically must be paid back over a five-year amortizing repayment schedule (no prepayment penalty) WHERE can I learn more about 401k Loans? - Check out the description section for a couple links that cover pros and cons of the 401k loan - "To borrow money from your 401(k), you'd need to ask your employer about their 401(k) loan options and fill out the necessary paperwork." - Business Insider WHEN should I consider a 401k Loan? - This is not something you want to do without truly thinking through your other options, but this is potentially a better option than say a high interest loan - "The grim but good news: the best time to take a loan is when you feel the stock market is vulnerable or weakening, such as during recessions." - The reason this is the case is that the money for the loan no longer grows w/ the market so this is opportunity cost ... whereas if the market is going down the money borrowed isn't going down WHY should I learn about 401k loans? - Life happens and with it comes the unexpected ... knowing what your options for unforseen expenses can help you better navigate an already stressful situation without making costly mistakes - A 401k loan offers speed and convenience in accessing your own funds; repayment flexibility as it can be withheld from paychecks; and cost advantage relative to high interest loans as interest is simply paid to yourself. HOW do I get a 401k loan? - "Many 401(k)s allow loan requests to be made with a few clicks on a website, and you can have funds in your hand in a few days, with total privacy." - Investopedia - "One innovation now being adopted by some plans is a debit card, through which multiple loans can be made instantly in small amounts." - Investopedia - Before you go through with this, be sure to read more about pros and cons of a 401k loan Video: https://www.youtube.com/watch?v=WPqx14JOUr4 Reference: https://www.investopedia.com/articles/retirement/08/borrow-from-401k-loan.asp https://www.businessinsider.com/401k-loan P.S.: Despite our best laid plans, life always finds a way to take us by surprise. An emergency fund is essentially an insurance policy against the unexpected ... a 401k loan is more of a last resort in my mind. Also Roth IRA can withdraw initial contributions without penalty but you unfortunately wouldn't be able to put it back in ... thus not advised and again very last resort. EDIT: Wish there was a way to flag or highlight comments to make more visible ... gonna try doing this instead. "Warning: If you have a traditional 401k you're contributing to it pre-tax. If you then have to take a hardship loan, you're going to you pay it back/replenish it/get back "in" with AFTER tax money, and in an otherwise tax-deferred account. Basically you do not want to ever do this unless you literally absolutely have no other choice or recourse. It's better than liquidating it all together, but it's really bad. You do not (or should not) *want* to borrow against your retirement account, ever. I have had to do it before. It sucks so bad paying it back and realizing what you're losing with that tax thing" - @spinchange #MakeTheWorldBetter
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