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Ok this question got me thinking and it's been answered above but I didn't clearly understand it so I'll lay out a scenario.
I have a 401k balance of $100,000.00 with 1,000 shares of Apple at $100 a share.
I take a loan out for $25,000. How is the loan given:
A) does my fund administrator lend me money against my 401k balance as collateral? As in I still own all 1,000 of my shares. All repayments then go back to fund administrator as my position was never sold.
B) does my fund administrator sell 250 shares for $25,000.00 and give me that money? The loan is then repaid and reinvested each paycheck at the new price of the stock?
Ok this question got me thinking and it's been answered above but I didn't clearly understand it so I'll lay out a scenario.
I have a 401k balance of $100,000.00 with 1,000 shares of Apple at $100 a share.
I take a loan out for $25,000. How is the loan given:
A) does my fund administrator lend me money against my 401k balance as collateral? As in I still own all 1,000 of my shares. All repayments then go back to fund administrator as my position was never sold.
B) does my fund administrator sell 250 shares for $25,000.00 and give me that money? The loan is then repaid and reinvested each paycheck at the new price of the stock?
Or something else?
They would sell 250 shares at 100.00 to give you 25000.00. When you make payments they buy the share at that days price.
401K LOAN is a bit of a misnomer because they aren't holding the shares as collateral they are selling them.
They would sell 250 shares at 100.00 to give you 25000.00. When you make payments they buy the share at that days price.
401K LOAN is a bit of a misnomer because they aren't holding the shares as collateral they are selling them.
They sell assets and loan you money secured by the remaining assets, that's not a misnomer
Its a loan from u to u. The interest you pay goes back j to your accoutb.
And yes they will sell ur funds and give you your money. When you pay lumpsum , you will buy new funds at current prices
They sell assets and loan you money secured by the remaining assets, that's not a misnomer
Yes and no.
Yes, they sell assets and loan you the money.
No, the loan is not secured by the remaining assets. And it's not secured for a very simple reason: if you don't pay back the loan it is simply treated as a distribution of funds. Consequently, there isn't anything that needs to be secured.
No, the loan is not secured by the remaining assets. And it's not secured for a very simple reason: if you don't pay back the loan it is simply treated as a distribution of funds. Consequently, there isn't anything that needs to be secured.
The loan is secured by assets otherwise you wouldn't be getting a loan without credit checks in the first place.
No, the loan is not secured by the remaining assets. And it's not secured for a very simple reason: if you don't pay back the loan it is simply treated as a distribution of funds. Consequently, there isn't anything that needs to be secured.
This is correct. Although most plan administrators will not let you stop making loan repayments if you're actively employed, your loan will typically be considered in default quarter after the quarter in which you stop making loan repayments. There are special considerations (ie. longer grace periods) given for leave of absence due to military and maternity leave.
Unpaid balance will be defaulted and if you're under 59.5 years old, you will incur a 10% penalty in addition to ordinary federal and state income taxes.
You cannot offset an outstanding 401k loan balance with your remaining assets in the 401k.
The loan is secured by assets otherwise you wouldn't be getting a loan without credit checks in the first place.
What credit checks? The 401(k) programs with which I'm familiar do not run credit checks when an employee seeks a loan from their plans. Why would they? Again, the employees are just borrowing their own money. And if they don't pay it back, it is considered a withdrawal/distribution. The administrator of the program is not at any risk from a loan default. Consequently, there is no need to secure the loan and there is no need to run a credit check.
What credit checks? The 401(k) programs with which I'm familiar do not run credit checks when an employee seeks a loan from their plans. Why would they? Again, the employees are just borrowing their own money. And if they don't pay it back, it is considered a withdrawal/distribution. The administrator of the program is not at any risk from a loan default. Consequently, there is no need to secure the loan and there is no need to run a credit check.
I didn't say a credit check was run and said without the assets you wouldn't get a loan without a credit check. The loan has assets associated with it and you are borrowing your own money
I didn't say a credit check was run and said without the assets you wouldn't get a loan without a credit check. The loan has assets associated with it and you are borrowing your own money
I don't understand why you're continuing to argue a point that makes no sense whatsoever. The other assets in the 401(k) are completely irrelevant to the loan. Those assets are never - - - I repeat, never - - - used to repay the loan in the event of a default. The defaulted loan is just re-characterized as a simple withdrawal of the employee's (or former employee's) funds. It should be self-evident to you then (but for some unknown reason it's not) that the loan is not secured by the other assets in the 401(k).
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