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Old 07-17-2019, 12:27 PM
 
Location: Illinois USA
347 posts, read 196,915 times
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I've heard that some people take a personal loan from their retirement accounts and it is interest free in the sense that anyinterest due they pay to themselves ??
is that true and how does that work if I have multiple retirement accounts from previous employers?

Do I need to consolidate these loans into a single account and then take a loan from it ?


Thanks in advance
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Old 07-17-2019, 01:23 PM
 
8,875 posts, read 5,156,823 times
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Quote:
Originally Posted by Dad01 View Post
I've heard that some people take a personal loan from their retirement accounts and it is interest free in the sense that anyinterest due they pay to themselves ??
is that true and how does that work if I have multiple retirement accounts from previous employers?

Do I need to consolidate these loans into a single account and then take a loan from it ?


Thanks in advance

If you are no longer an employee of the company, it is doubtful they will allow you to take a loan against your 401k. However, it won't hurt to contact the plan administrator and ask if it is allowed.

Rolling your funds into an IRA will not help as loans from an IRA are not allowed. (Except that you can take a short term "loan" by withdrawing the funds from one tax-advantaged account, because you have 60 days to get the money into another tax-advantaged account before it is considered a distribution. You are allowed to do this once per year only.)
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Old 07-17-2019, 01:35 PM
 
Location: St Louis MO area
69 posts, read 24,684 times
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Even if you are still employed with the company, the loan is not "free." Yes, you will be paying the interest back to yourself. But there are loan fees to start the loan, and most companies charge a fee every year there is a loan outstanding. There is quite a bit of paperwork on the investment company and the employer side and someone has to pay for it. Also, while the loan is outstanding, it will not make any gains if the market goes up. And if you get laid off or have to quit before it is paid off, the tax situation can be sticky, depending on your age. Every situation is different.

401(k) loans might seem like a good idea at first, but there are a lot of things to consider before taking one.
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Old 07-18-2019, 06:40 AM
 
Location: Coastal New Jersey
56,279 posts, read 54,731,851 times
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I am in a public pension system, and yes, we could take a loan against our retirement. I did it multiple times over the years because the interest rate was lower than what I could get on the outside, plus it doesn't show up on your credit record.

As a matter of fact, (some of the financially perfect pansies better grab their smelling salts here) I took out a retirement loan for the 3% down payment on my condo. I wanted to buy a place of my own rather than rent, the tax credit was being offered for a window of time, and I wanted to take advantage of it. I had a good salary and could make the mortgage payments, but I had no savings because Life.

Someone else I know who works for a different public transportation agency just did the same thing to buy in a 55+ complex.

Now the catch is that if you leave work, via retirement or otherwise, and still have an outstanding balance, your pension is PERMANENTLY reduced. I took out the loan and bought my condo in 2010, but long before I retired in 2016, I had it paid off and so my final pension allowance was not affected.

I am not sure you would be able to borrow against a pension if you aren't working there anymore, though. The best place to ask is the pension system from which you are interested in borrowing.
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Old 07-18-2019, 06:43 AM
 
263 posts, read 99,305 times
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Be aware that, if you leave your job for any reason or are fired/laid off, any 401(k) loan can become immediately due. I saw that happen to several people at one of my jobs. It wasn't pretty for any of them.
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Old 07-18-2019, 07:36 AM
 
Location: Tennessee
23,685 posts, read 17,651,107 times
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It may very well be better than paying high interest rates on CC debt or certainly better than something like a payday loan.
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Old 07-18-2019, 07:52 AM
 
Location: In the land beyond Ohare!
933 posts, read 480,956 times
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And I'll add, some people are better at paying off debt than others. This, along with the other what ifs, has always made this a risky proposition. Unless it was a emergency situation, I advise against.
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Old 07-18-2019, 08:07 AM
 
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The interest you pay yourself gets taxed 2x ....once when you pay it back with after tax dollars and again when you withdraw it down the road
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Old 07-18-2019, 08:31 AM
 
Location: Coastal New Jersey
56,279 posts, read 54,731,851 times
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Quote:
Originally Posted by mathjak107 View Post
The interest you pay yourself gets taxed 2x ....once when you pay it back with after tax dollars and again when you withdraw it down the road
That's really a moot issue though when you really need the money. If you have other resources to begin with, you wouldn't be considering borrowing from a retirement account in the first place.

For me, the idea of having the opportunity to own and not pay rent anymore far outweighed something so minor.
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Old 07-18-2019, 08:47 AM
 
71,935 posts, read 71,971,035 times
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Quote:
Originally Posted by numsgal View Post
Be aware that, if you leave your job for any reason or are fired/laid off, any 401(k) loan can become immediately due. I saw that happen to several people at one of my jobs. It wasn't pretty for any of them.
It once happened to me when the company failed
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