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Actually you typically pay yourself back with interest. On our plan you pay yourself back with 5% interest. So, if your account were to earn an average of 5% during the time was outstanding you wouldn't lose out on any earnings.
Well, kinda. But you're expected to come up with that 5% earnings out of your own pocket (and thus not spend it on other stuff in your life) instead of letting the market do the work for you.
Well, kinda. But you're expected to come up with that 5% earnings out of your own pocket (and thus not spend it on other stuff in your life) instead of letting the market do the work for you.
It was in reference to the posts suggesting that there is going to be a big gaping hole in your 401k at retirement time due to a loan that was done earlier on.
If you do a loan against your 401k remember that it will be due in
full when you leave the employer.
This is what I was thinking.......or what if you get laid off or get fired (all these things have been known to happen to other people).
I think you are nuts to borrow against retirement. Just dig down and pay it off - or stop contributing to your 401K and put the extra against the loans.
This is what I was thinking.......or what if you get laid off or get fired (all these things have been known to happen to other people).
I think you are nuts to borrow against retirement. Just dig down and pay it off - or stop contributing to your 401K and put the extra against the loans.
If there is a company match, I would say "stop contributing to your 401k" would be much worse than doing the loan.
I posted about this in a different thread some time ago but I recently recommended a couple to go ahead and take a 401k loan to payoff a credit card debt with a high interest rate. I did so after I had them disclose their financial situation to me and how the consumer debt was accumulated. They indicated that the debt was a result of frivolous spending when he was still single and that they had become more diligent in saving for the future and were living within their means. I strongly emphasized how important it was to be financially responsible going forward and should/if he return to the way he was, they will collectively be in much worse shape.
I warned the couple with respect to a potential loan default (taxable income) + 10% penalty should he be fired, quits the company or gets laid off and is not able to pay it off within 30-90 days of his termination date (# of days depends on the plan - note: 10% penalty does not apply if you're over 59.5 years old). I also indicated to them that 99% of companies will NOT let you transfer-out or transfer-in a loan balance you had with another employer so you will be screwed if you can't come up with the cash to payoff the balance. (note: I used to work in the 401k world and saw a number of companies that allowed loan balance transfers - not many but there were several that accepted loans from participants that quit/fired/laid-off etc. with another employer)
I was reluctant to recommend this option but I already see the change in them with respect to having a huge weight lifted off their shoulders. Hopefully they will stay the course and ultimately payoff the loan. In the OP's case, I really see it as a no-brainer to take the loan out and payoff the student loan. Just be mindful of the pitfalls.
I get ~8% company match (100% on first 4%, 50% on second 4%) on my 401k
I feel my job will be pretty stable the next 10 years. My company just worked with the state, and will be investing another $1billion expanding our facility, which is ever growing.
There is a 10 year pre-order backlog on the product we make with deposits already made. My company has been profitable for decades, and has had a pretty good year so far.
I am not too concerned about being laid off. Another reason why I bought a house in the area, is I felt like I had a good 10 years to build equity into it(2 years ago). Figure this loan would be for 5 years, about the same term as the current loan payment. I'd still be paying off at a same rate, just a lower interest amount, and the interest goes into my account.
I get ~8% company match (100% on first 4%, 50% on second 4%) on my 401k
I feel my job will be pretty stable the next 10 years. My company just worked with the state, and will be investing another $1billion expanding our facility, which is ever growing.
There is a 10 year pre-order backlog on the product we make with deposits already made. My company has been profitable for decades, and has had a pretty good year so far.
I am not too concerned about being laid off. Another reason why I bought a house in the area, is I felt like I had a good 10 years to build equity into it(2 years ago). Figure this loan would be for 5 years, about the same term as the current loan payment. I'd still be paying off at a same rate, just a lower interest amount, and the interest goes into my account.
That is about a 6% match. I still think it's a bad idea to borrow against your 401K. If you have equity in your house you should use that before your 401K dollars...if you feel like you have to take a loan to pay off a loan.
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