#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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Loans are not my thing. Appreciate the effort and information. I have two loans. Student and mortgage. I do everything to avoid. Puts me further in debt and losing money. 😜
@celtic I'm the same. I avoid loans as best as I can and only have my mortgage and practice buy in loan. 401k is a loan from yourself so it is a lesser of evils compared to high interest credit cards
Good morning bro. I hate loans and credit even though it’s helpful I rather pay cash for everything. Awesome Saturday school. Thanks for sharing
Maria@bunnymimi
This is a very complex subject, actually, and worth learning about. I highly recommend reading the literature that is available from the brokerage who runs your IRA. There are only certain times or events when you can withdraw from it, and the penalties and taxes may make one reconsider. Ultimately, it's your money though. It's important to know how to best leverage it.
@GetSlade I like using my credit card as a debit card w/ rewards! Good morning, hope you have a great weekend
@bunnymimi It definitely is a complex subject and one I didn't know existed until I was talking to my dad about pros and cons of a 401k vs rolling it over into a Rollover 401k which I think gets rid of the loan option.
@spinchange Ya I don't like the idea of borrowing against retirement savings. What about in the hypothetical situation of high interest credit card or payday loan vs 401k loan? Which would be the lesser of two evils?
Maria@bunnymimi
I just realized that you made a video, which I can't watch until later. So maybe you mentioned this. I just want to note that there are special rules to help first time home buyers. https://www.investopedia.com/articles/personal-finance/110415/can-you-use-your-ira-buy-house.asp Sorry for high-jacking your article. 🙏
@bunnymimi my post's are meant to start conversations and discussions to build out more helpful information in the comments. What is mine is yours! Hijack away!!
@spinchange I would agree. I guess in my mind while making this post/video I was thinking about it in the context of my Roth 401k and a situation that needed emergent cash on hand for something major and unexpected. Added your warning to the original post. Appreciate ya!
I did this years ago , I absolutely needed the money , had bad credit , money was available in the 401k , borrowed 9k , payed it back via payroll deduction , the interest that was paid went back to my account , worked out well for my situation, liked the fact I was paying myself interest & not some other institution.
What about borrowing from you Whole life insurance policy?
Maria@bunnymimi
@ctsshah I appreciate that. 😌 Thank you for your contributions to the community. Always helpful!
Have a wonderful day. I'll swing by YouTube and watch your video later this afternoon. 😃
@mountkailash I have never had whole life insurance policy before but I recently was made aware that here is a wrinkle in there that you can give yourself a loan from it ... these loan stuff is all very new to me.
@metoo527 💙
@bunnymimi Full disclosure I build the posts from the video text so you literally are not missing a thing, I am just trying to make information as easily accessible for people…See more
👍👍👍👍😊🎉🎉🎉
D
David@dclav
I took a 401k loan right before the covid dip to buy my home. Then the dip happened and lucky me, I paid that "dreaded post tax interest" back into my 401k during the dip. My gains were huge. It's a matter of luck sure, but I just did it again to negate higher interest credit debt. Fingers crossed for a dip.
@dclav Nice! Glad things worked out for ya and congrats on the new home 🏡😁
We took a $2000 loan against husband’s traditional 401k this year when he got sick and was off work for 3 months! He was getting long term disability checks from work, but they were only 70% of what he normally brought home so it put us further behind! I’d have rather done that than get a bank loan that’s going to charge more! It’s NOT like I can go out and get a temporary job, there isn’t anyone…See more
Off the topic, I noticed that Public transfer crypto to Apex. Is this normal?
@JS4245 Public utilizes Apex for their services for crypto. Here is a link for more info https://help.public.com/en/articles/5578721-are-there-fees-to-invest-in-crypto-through-public
TY! Much different from Coinbase.
@JS4245 Ya I think Public is a great gateway into crypto but until they develop a wallet, staking, and reduce fee it isn't the best option for crypto.
@stephanitely 💙appreciate you reading it!
@ctsshah I agree that the FEES are just a little TOO HIGH! They definitely need to be cut in HALF! I understand that they must make money, but not that much as we don’t even OWN the coins! We shouldn’t be that far in the HOLE when we buy crypto! Fees should be .5% & 1% not 1% & 2%! If we got to keep the coins then the 1% & 2% would suffice! I hate starting out so far in the hole with the crypto coi…See more
